Will the "Sell in May" curse come true? After a sharp rise, the US stock market may face a tough June

According to Zhitong Finance APP, U.S. stocks rebounded strongly in May, with the S&P 500 index rising 6.2%, marking the largest single-month increase since 1990, mainly due to the suspension of trade tariffs and the boost from technology stocks. However, analysts warn that June has historically performed poorly (with an average increase of only 0.2% over the past 30 years), compounded by trade war risks, uncertainty in Federal Reserve policies, and the quarterly "Triple Witching Day" (options expiration and asset rebalancing), which may lead to a market correction. Historical data shows that June typically performs poorly in election years, and the seasonal pattern of "Sell in May" suggests weak summer market conditions.

Concerns over a new round of trade wars, uncertainty in Federal Reserve policy direction, and adjustments in asset allocation at the end of the quarter could all trigger market volatility. As of Thursday, with the S&P 500 index having risen 6.2% this month, the index is on track for its largest May increase since 1990. This rapid rise is attributed to President Trump's temporary halt on severe tariffs, with the index currently about 4% lower than its record high in February.

Jeffrey Hirsch, editor of the Stock Trader’s Almanac, stated, "Traders have become numb to Trump's 'tariff shock and awe' strategy. After this massive rally, the stock market may experience a volatile period in the coming weeks due to the risk that the government may implement more aggressive trade policies." He accurately predicted the stock market recovery following the 2008 global financial crisis.

The Test is Coming

Hirsch noted that high valuations, weak demand for hedging products, and excessive investor positioning make the stock market susceptible to corrections. This could lead to lower returns in June. Data shows that over the past 30 years, the average increase of the S&P 500 index in June has been only 0.2%, compared to 0.8% in the other 11 months. After Thursday's rally essentially stalled, divergences have emerged, as Nvidia's strong performance has been overshadowed by the uncertainty brought about by Trump's tariff policies.

The first test of market determination will be revealed in the Federal Reserve's interest rate decision on June 18. Two days later, the "Triple Witching Day" will occur—when a large number of stock-linked options expire, exacerbating market volatility—followed by quarterly asset allocation adjustments at the end of the month. These key milestones will determine whether bulls can continue to push the stock market higher as the S&P 500 index approaches the critical psychological level of 6000 points.

The outlook for the stock market in the coming months is not optimistic. According to Hirsch, over the past 70 years, the S&P 500 index has typically performed poorly in early June in the year following a U.S. presidential election, as investors take profits in preparation for the arrival of summer. If the stock market has seen a strong rally in May (as it has this year), this phenomenon becomes even more pronounced

"Sell in May"

The saying "Sell in May and go away" refers to the six-month period from May to October of the following year, which historically has been the least favorable time for investing in stocks.

According to Hirsch, since the early 1970s, the S&P 500 index has performed modestly from Memorial Day to Labor Day, with an average gain of only 1.8%. However, in the past decade, the S&P 500 index has only experienced a decline in June once.

This time, however, fund managers have reduced their cash holdings and have heavily invested in U.S. stocks in recent weeks. This bullish trend raises the question: who will be willing to buy after fund managers rushed into the stock market at a rapid pace in May?

According to UBS, Commodity Trading Advisors (CTAs) typically buy stocks when index prices rise and sell stocks when prices fall. Last week, after the S&P 500 index broke through 5800 points, CTAs formed a net long position in stocks for the first time. However, the bank's equity derivatives strategist Maxwell Grinacoff stated that if the S&P 500 index fails to break through 6000 points in the short term, CTAs will only make moderate purchases in the coming weeks.

Grinacoff said over the phone: "The investment strategy of CTAs still leans towards the downside. If the market rebound quickly fades, those trend followers will be forced to turn their stock positions into net short positions. This will inevitably push stock prices lower from current levels."