The stock market has been on a wild ride recently, with steep drops in early April followed by a sharp rebound. Some investors are now considering selling their stocks, especially with the traditional “Sell in May and Go Away” mantra making the rounds. However, exiting the market in May means missing out on a month with historically average returns.
The period from April 30 to October 31, while weaker than November to April, still sees stocks in the black nearly 73% of the time. The rationale behind “Sell in May” is flawed, as it assumes the calendar matters to stocks. Recent volatility shows that market reactions are driven by events like trade policy changes, not the month itself.
Investors may also be tempted to sell once their portfolios recover from a correction, a phenomenon known as “breakevenitis.” However, this fearful reaction can lead to missing out on significant growth. A hypothetical investor who stayed in the market after the 2023 correction would have gained over $180,000 compared to one who exited upon breaking even. While volatility may return, fixating on past returns or calendar-based myths won’t help in forecasting the future.
Investors are advised to remain patient and remember that the only basis for action in markets is knowing something others don’t. Broadcom, a leader in the AI chip market, has seen its stock pull back despite rapid growth in AI revenue. The company sold $12.2 billion worth of AI chips in fiscal 2024, a 220% increase from the previous year.
This momentum has continued into fiscal 2025, with AI revenue reaching $4.1 billion in the first quarter, a 77% increase from the same period last year. The demand for custom AI processors is expected to grow substantially, as they are designed to perform specific tasks more efficiently than general-purpose CPUs and GPUs. Major cloud computing providers like Meta Platforms and Alphabet are leveraging custom AI processors and reportedly collaborating with Broadcom.
May challenges in volatile markets
Broadcom’s current AI customers have unlocked a revenue opportunity worth $60 billion to $90 billion over the next three fiscal years. The company is on track to add four more AI customers, potentially expanding its market opportunity significantly.
Analysts expect Broadcom’s earnings to increase by 36% in the current fiscal year to $6.63 per share. The stock’s price/earnings-to-growth ratio (PEG ratio) of 0.53 suggests that it is undervalued relative to its expected growth. Given Broadcom’s exceptional growth potential and attractive valuation, the stock appears to be a compelling investment for those looking to capitalize on the long-term adoption of AI technology.
Historic volatility is disrupting investors’ favorite seasonal indicators, making the old adage “sell in May and go away” less reliable this year. Trade wars, tax policies, and debt ceiling risks are skewing seasonal norms, according to analysts. Ross Mayfield, an investment strategist at Baird Wealth, said, “I don’t think seasonal norms will be as useful in such an uncertain policy environment.
The outcomes of tariff discussions and the debt ceiling will have far more of an impact on returns than seasonal patterns.”
The typical December rally failed to manifest in 2024, and April, usually one of the year’s best-performing months, saw the S&P 500 fall 1.1% due to tariff escalations. Paul Hickey, co-founder of Bespoke Investment Group, noted, “In a benign environment, you would expect to see positive seasonal trends, but, especially after the last six weeks, who knows what we’re going to be talking about.”
Some positive catalysts, such as tax cuts and pro-growth policies, could occur during the “sell in May” window. However, trade risks will continue to loom over investors.
Michael Brown, Pepperstone’s Senior Research Strategist, suggested that investors heed the May adage and sell into rallies, given the huge degree of trade uncertainty and downside risks. Recent years have shown that stocks have been performing better in the six months between May and October, with double-digit gains in three of the last five years. The Zweig Breadth Thrust indicator and data from Carson Group’s chief market strategist, Ryan Detrick, suggest that the market could rise this time around.
As volatility continues to crush seasonal norms, investors must remain vigilant and adaptable in this unpredictable environment.
