Since 1993, the general market has averaged about a 2.5% gain in May.  The gains tend to occur in the first half of the month, continuing the big gains from the second half of April.  The second half of May gains around 1%.

One interesting (and probably useless) fact regarding May is that a positive May has been a strong "predictor" of a positive calendar year as a whole, beating the more esteemed January indicator by a decent margin.  We put "predictor" in quotes because, of course, a good portion of the year has already passed by the time May rolls around.  31 out of 39 positive Mays since 1930 have occurred in positive years.

Relatively cheap stocks seem to prosper.  According to our data, the 10% cheapest stocks have averaged an 8% gain in the month.  In May 2001, the group gained about 20% versus the market's 7%.  In May 2003, the group gained a monstrous 32%, and you could have improved on that figure by going with an even more select group of cheap stocks...say, the lowest 4%.  In other years, the gains via such a strategy may not have been spectacular, but such a strategy hasn't reversed has yet to result in any losses in the month..

The tendency for cheap stocks to move forward in May is significant in both halves of the month, though you have to tone down your expectations for giant gains in the second half.  In general, in fact, first half strategies strongly parallel those for the month as a whole, with no surprises.

Lower down the significance scale, three month and yearlong losers perform well.  For short sales, simply reverse the above...buy expensive stocks, or those that have a high 100 day moving average.

In keeping with the quarterly theme, stocks we define as having low market capitalization (low price * average volume ) perform well.  Stocks with low standard deviations also tend to perform above what ordinarily would be expected from this staid group, opening up possibilities for option purchases.  This trend continues into June.

In terms of industry groups, gas and electric utilities have underperformed in the first half of the month, but they have rebounded in a nice way in the second half.  Banks perform well in the second half.  Transportation-related stocks have faltered.  On average, semiconductors have fared poorly in the second half, though they've surprised in given years.  Oil stocks have done well in both halves.  Be careful:  the gains in oil stocks tend to reverse in June.

Looking at the notion of "industry momentum", it seems that stocks whose industries performed poorly in the last week of April tend to fare well in May.  The reverse is also true:  strong industries in late April tend to suffer in May.  The same contrarian logic applies when the strategy of buying previous May winners is considered...the data shows last year's May losers actually tend to prosper.  For intrepid followers of such an approach to seasonality, however, we offer the following table of stocks that have been historically strong or weak in the month of May.

We also examined the S&P 500 (as opposed to the Russell 3000, our usual source of stocks) with data going back to 1985.  The trends were largely the same, though the levels of significance were weaker...not surprising given the smaller, less diverse, larger-cap selection of stocks.   Small caps and cheap stocks were strong, as above.

Looking at the S&P500, we didn't identify any short strategies that worked beyond what would be expected in tossing the dice.  Ignoring this lack of significance, it appears that expensive stocks, large-caps, and April gainers would best be avoided.

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