Global week ahead: Is 'Sell in May' just a myth?

Conventional wisdom can be a stubborn force.

As the trading month of May gets into full swing this week, should investors continue to follow the old adage of "sell in May and go away" — a strategy of selling stocks in May and re-entering the market in November to avoid low returns and low volumes during the northern hemisphere's summer?

Right now, commonly accepted beliefs and traditional trading ideas are being tested.

If April is anything to go by, investors could risk leaving returns on the table if they step out of stocks now. Europe's STOXX 600 and Germany's DAX just closed their best month since January of last year, while Italy's FTSE MIB put in an even better performance, with a near-9% rally marking the strongest month since January 2023.

Stateside, the S&P 500 and Nasdaq have logged their best monthly performances in around six years.

A lot of it comes down to the Trump administration changing the game for investors. A potential resolution to the war in Iran could boost equities this spring, while major stock markets across the globe have remained remarkably resilient throughout the unrest in the Middle East.

In recent years, investors who sold in May and went away missed out on sharp advances, with JPMorgan's trading desk pointing out that, over the past 10 years, the S&P 500 has averaged a return of 1.5% in May and a 1.9% pop in June. Returns are even stronger in July at an average of 3.4%.

In Europe, Deutsche Bank has crunched the numbers to see how the "sell in May" strategy plays out this side of the Atlantic. For the Stoxx 600, Deutsche Bank says "in 25 of 39 years, the 'sell in May' strategy underperformed a straightforward Buy and Hold ... offering no statistical edge".

Investors may want to stay more agile in May, as the coming weeks bring a slew of earnings from European companies. Big banking names like Unicredit, HSBC and Commerzbank will all issue numbers in the coming days, while energy giant Shell and pharma group Novo Nordisk will also dominate headlines.

Risk factors

Despite the record-breaking run for global stocks, there are also alarm bells.

Central banks on both sides of the Atlantic are keeping a cautious tone, with Federal Reserve Bank Chair Jerome Powell saying, "inflation remains elevated", ECB President Christine Lagarde warning that she is monitoring "the impact of negative supply shocks", and the Bank of England painting a troubling worst-case scenarios for inflation.

With all these market factors at play, investors will have to decide between traditional trades or more unconventional strategies, but as Deutsche Bank says, the "Sell in May" strategy offers no more certainty than a coin toss.

Monday: U.K. market holiday, April PMI data from across Europe

Tuesday: Earnings from Unicredit, HSBC, AB Inbev, Ferrari and AMD

Wednesday: Earnings from Novo Nordisk, Infineon, BMW, Diageo and Disney

Thursday: Earnings from Shell, Rheinmetall, Maersk, BMPS and AirBnB

Friday: Earnings from Commerzbank, IAG