Investing.com - The old market adage of "sell in May and go away" returned to the agenda this week, as we kicked off a traditionally difficult month for financial markets.
The strategy refers to a seasonal trading approach where an investor will cash out of equity holdings in May, staying in cash until October, a period which historically sees a jump in volatility, and gets back into the market in November.
Yet selling in May and taking the summer off hasn't worked well lately.
When you look at how the S&P 500 has performed, following the rule would have caused you to miss out on gains in five of the past six years.
With that being said, May 2018 could be a far rockier month than in previous years, as the market grapples with uncertainty over a brewing U.S.-China trade war, rising interest rates and higher inflation.
A faster pace of rate hikes by the Federal Reserve this year is also contributing to the increased volatility.
The stock market is in negative territory for 2018 so far. The Dow is down 3.2% this year, while the S&P 500 is off 1.4%.
So far in 2018, it seems that market players are no longer buying the dip in stocks like they did in recent years. Instead, rallies are being sold – a worrying sign for the bulls.
With the bulk of earnings season behind us already, it looks like headlines surrounding trade talks with China and political developments in Washington regarding President Donald Trump will dictate sentiment in the weeks ahead.
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