Is "Sell In May" An Overstated Adage? Play 4 ETFs

As the broader market steps into the fifth month every year, the old adage – “sell in May and go away” – comes to the forefront. The proverb is ingrained in the S&P 500’s awful historical run for the May-to-October period.

May has been a subdued month with average gains of 0.16% since 1950. But the maxim has not held good in recent times. Per an article published on CNN.com, the proverb proved itself wrong in the past few years with the May-October period turning pretty profitable (read: 5 ETFs to Buy in Defamed May).

What Latest History Tells About “Sell in May” Adage

The S&P 500 upped about 6% from the start of May through the end of October in 2017, rose 5% during that phase in 2016, jumped 7% in May-October of 2014, surged 10% in in May-October 2013 and managed to score a meagre gain in 2012. The only exception was 2015 when the market crashed on China’s hard-landing fears and the return of deflationary worries in the Euro zone (read: 5 ETFs Up At Least 10% This Year).

Already, the S&P 500 is up 2.7% this month (as of May 16, 2018), the Nasdaq Composite has generated 3.8% gains and the Dow Jones Industrial Average has managed to add about 2.8% returns.

Small-cap index Russell 2000 has advanced 4.3% so far this month to hit a record high. It shows that the proverbial stock market sell-off has less to do with seasonality. All these gains came despite seven-year high U.S. benchmark bond yields (read: ETF Strategies to Play the 7-Year High Benchmark Yield).

Plus, the present market momentum should be solid in the United States with the tax reform underway, President Trump announcing a drug plan which is in line with the best interest of drug makers and several U.S. economic data coming in better than other developed economies. The growth picture appearing from the Q1 earnings season is impressive. U.S.-China trade tensions may also see a resolution.

Any Downside Risks?

All in all, investors can definitely cash in on renewed hopes on Wall Street and positive sentiments. Only one glitch can derail the market momentum, i.e., rising rate concerns. However, much of this fear seems to be priced in at the current level. As per Credit Suisse (SIX:CSGN), a full-fledged “stock exodus” would not happen until U.S. yields do no cross the 3.5% mark.

ETFs to Play

So, investors can definitely play the upbeat mood with the funds that are on a tear lately.

PowerShares DWA Consumer Cyclicals Momentum ETF PEZ

Rising consumer confidence, a solid labor market and a tailwind from tax reform are boosting spending power. As a result, after gaining 0.8% in March, U.S. retail sales registered a 0.3% sequential rise in April. The latest reading matched analysts’ expectations.

So, investors can play the 39-stock fund PEZ, which gives exposure to companies that are showing relative strength. The fund was is about 6.9% in May (read: U.S. Retail Sales in the Pink: ETFs & Stocks to Play).

iShares Russell 2000 ETF IWM

This May is all about small-cap investing. An improving U.S. economy, a rising greenback and geopolitical concerns pushed investors toward the more domestically-focused, small-cap stocks. So, a look at the fund, which measures the performance of the small capitalization sector of the U.S. equity market, makes sense. The fund is up 4.4% this month.

PowerShares DWA Momentum ETF (V:PDP)

Momentum investing might be an intriguing idea for those seeking higher returns in a short spell. The underlying index includes nearly 100 U.S.-listed companies that demonstrate powerful relative strength characteristics and built on Dorsey Wright proprietary methodology. This fund has advanced about 4.4% so far this month.

PowerShares KBW Regional Banking ETFKBWR

A rising rate should bode well for banks as a whole as this group benefits from a rising rate environment. So, it’s time to play KBWR. Its underlying KBW Nasdaq Regional Banking Index is an equal capitalization-weighted index comprising securities of 50 mid-cap banking companies. The fund has added over 3% in the month-to-date frame.

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