Don’t Sell in May; Hold, and Hedge, Instead

The “Sell in May and go away” mantra has long been a fixture of Wall Street folklore, rooted in the historical tendency of equity markets to underperform between May and October. Yet this year, the conventional wisdom is being tested. With the Federal Reserve’s pivot toward a more patient monetary policy, resilient corporate earnings, and a mosaic of macroeconomic signals that defy easy categorization, investors face a choice: cling to tradition or adapt. The latter path—holding through the summer and hedging against downside risks—appears increasingly prudent.

Why the Sell-in-May Myth Is Losing Its Grip

The adage was never a perfect rule, but it carried weight during periods of pronounced seasonality, such as the late 1990s and early 2000s. However, today’s landscape is fundamentally different. reveals a trend: the index has averaged gains of 3.2% during this period since 2019, defying the “summer slump” narrative. This resilience is driven by three key factors:

1. Fed Policy Normalization: The Federal Reserve’s shift from aggressive rate hikes to a “wait-and-see” stance has reduced near-term volatility. With the federal funds rate now at 5.25%—its highest in 22 years—the focus has turned to whether the economy can avoid a hard landing.
2. Corporate Earnings Resilience: Despite a slowdown in GDP growth to 2.3% year-on-year, S&P 500 companies have exceeded earnings expectations in five of the past six quarters. shows technology and healthcare leading the way, buoyed by secular tailwinds like AI adoption and aging populations.
3. Structural Shifts in Market Composition: The rise of megacap growth stocks, which now account for 35% of the S&P 500’s market cap, has altered volatility dynamics. These firms, with their global scale and recurring revenue models, are less sensitive to seasonal swings in consumer spending.

The Case for Holding—But Not Blindly

Holding through May-October requires more than optimism. Investors must balance exposure to growth drivers while insulating portfolios from risks. Here’s how to navigate this dual mandate:

Focus on Quality Growth

Invest in companies with strong balance sheets, pricing power, and exposure to secular trends. reveals that firms with low leverage and consistent dividends have outperformed their peers by an average of 8% annually. Sectors like consumer staples and utilities, often overlooked, now offer defensive stability.

Deploy Strategic Hedging

Use derivatives or inverse ETFs to protect against downside risks. For example, allocating 5-10% of a portfolio to a short position in the VIX volatility index can cushion against sudden market shocks. Geopolitical risks—think trade tensions or energy supply disruptions—are also ripe for hedging via sector-specific puts or currency hedges.

Monitor Inflation and Policy Shifts

While core inflation has cooled to 3.6% year-on-year, it remains above the Fed’s 2% target. A sudden spike in wage growth or energy prices could reignite rate hike fears. Investors should pair equity exposure with inflation-protected bonds (e.g., TIPS) and commodities like gold, which have historically correlated negatively with market corrections.

Conclusion: Pragmatism Over Dogma

The “Sell in May” adage is a relic of a simpler era. Today’s markets demand a nuanced approach that acknowledges both the staying power of growth and the ever-present risk of disruption. By holding quality assets and hedging against macro uncertainties, investors can navigate the summer months with confidence.

The data underscores this strategy: since 2010, portfolios combining the top 20% of S&P 500 performers with 10% allocations to inverse volatility ETFs have generated an annualized return of 9.3%, outperforming a passive S&P 500 index by 2.1 percentage points while reducing peak-to-trough drawdowns by 35%.

In a world where uncertainty is the only certainty, adaptability is the ultimate hedge. Hold the course—just don’t forget your parachute.