While the dog days of summer have failed to produce record highs for the S&P 500, one widely followed strategist has a simple message for investors: wait until winter.
Ryan Detrick, senior market strategist at LPL Financial, said markets are flashing a historically bullish signal after a solid streak of monthly gains.
“The S&P was up in April, May, June and July, those four months this year,” Detrick said Thursday on CNBC’s “Trading Nation.” “Since 1950, there were 10 instances where that had happened (those four months were higher), and the rest of the year, so the final five months, were actually higher every single time.”
This year marks the third straight year where April, May, June and July have each been higher. In 2016, the S&P 500 had a 3 percent return over the final five months. It performed even better in 2017 with an 8.2 percent return.
“Our theory there is maybe the market is telling us something that sell in May isn’t working this year and maybe the bulls could be in charge for the rest of 2018 here,” said Detrick.
To get that four-month win streak, the S&P 500 had to buck a conventional piece of market wisdom: sell in May and go away. This saying sums up the traditional investor advice to unload positions in May to avoid seasonally weak summer months.
“Let’s take a look back in history at sell in May. Everyone knows the worst six months of the year take place from May until the end of October,” Detrick said. “Obviously this year that hasn’t worked. The S&P’s up 8 percent since the start of May.”
It might not be a seamless run, though. A weak stretch over the next two months could precede a strong finish to the year, said Detrick.
“Historically August is a tough month,” he added. “We wouldn’t be shocked at all if August, September had a little bit of volatility especially during a midterm year like we are right now. That would be perfectly normal.”
The S&P 500 is performing well in its start to August. The benchmark index has increased more than 1 percent in just over a week.
It touched a record high of 2,872.87 on Jan. 26.