The U.S. stock market is approaching what has historically been its strongest six-month stretch, from November through April, despite skipping the traditional “sell in May and go away” dip. Investors, however, remain cautious, wondering if the rally can maintain its momentum amid rising Treasury yields and concerns over the upcoming presidential election.
Historically, the November-to-April period delivers the best returns, with the S&P 500 achieving its highest average six-month performance since 1945, according to Sam Stovall, chief investment strategist at CFRA Research. Data shows an average return of nearly 7% during this period compared to just 2% from May through October.
This year, however, has been unique. The S&P 500 has surged over 16% since the end of April, marking the strongest May-October performance since 2009, following a 20% increase in the previous November-to-April period. This streak of double-digit gains has raised concerns about potential market fatigue, but history suggests otherwise.
“Momentum like this often acts as a running start,” Stovall noted, suggesting strength could carry through to the next six months.
In 12 instances since 1945 where the S&P 500 gained over 10% between May and October, it went on to rise by an average of 13% from November through April. When the index posted double-digit gains in both periods, stocks continued to perform positively in the following cycle, averaging an 11% gain.
Additionally, the November-April period has been favorable for small-cap stocks, as well as international indices like the Russell 2000, MSCI EAFE, and MSCI Emerging Markets, according to CFRA data.
Nevertheless, political and economic factors are stoking investor uncertainty. Rising Treasury yields and heightened fiscal concerns tied to the incoming administration have led to stock market volatility. Last week’s increase in Treasury yields, with the 10-year note trading above 4.3%, posed a hurdle for equities.
“After a 23% year-to-date rally, the question is how much more upside potential remains,” said José Torres, senior economist at Interactive Brokers. He noted that, despite this year’s impressive run, it lags behind similar periods in recent years, such as 2023, 2021, 2019, and 2013, which each saw returns ranging from 24% to 30% over the first 10 months.
For the rally to extend, Torres believes investors will need to see a favorable political outcome, moderated economic data, calmer interest rates, and positive AI-related earnings commentary.
Sam Stovall remains optimistic, stating the market can continue its “climb over the proverbial wall of worry,” with potential support from future interest rate cuts and anticipated strength in technology earnings.
U.S. stocks ended mostly higher on Tuesday, with the Nasdaq Composite up 0.8% and closing at a record high for the 28th time this year. Meanwhile, the Dow Jones fell 0.4%, and the S&P 500 rose 0.2%.
