The phrase "sell in May and go away" is a common adage among investors, especially in the stock market. It suggests that the period between May and October is usually unfavorable for stocks, and that investors should sell their holdings and return in November when the market tends to perform better. But does this strategy work for crypto markets as well? And what are the factors that could influence the performance of both markets in 2023?

The Origin and Validity of the Saying

The origin of the saying "sell in May and go away" is not clear, but some historians trace it back to the 18th and 19th centuries, when London traders would leave the city for the summer and avoid the stock market until the end of October, when a famous horse race called St. Leger's Day took place¹. The saying reflects the historical tendency of the stock market to underperform during the summer months, compared to the winter months. According to a report by Carson, on average, the May to October period has borne the least growth of 1.7% in comparison to other six-month combinations².

However, the validity of this strategy may vary depending on the market conditions, economic factors, and individual stocks. For example, in 2022, the S&P 500 Index (SPX) gained 16% from May to October, despite the Covid-19 pandemic and the US presidential election⁴. Therefore, investors should not blindly follow this rule, but rather analyze the market trends and opportunities before making any decisions.

 The Impact of Fed Policy and Bank Crises on Stock and Crypto Markets

One of the major factors that could affect both stock and crypto markets in 2023 is the monetary policy of the Federal Reserve (Fed), which is expected to raise interest rates multiple times to combat inflation. The Fed has already increased the rates by 25 basis points (bps) in March and April, and is likely to do so again in May and June. The probability of another rate hike in May is currently at 80%, rising from 75% after reports of another bank crisis emerged².

The bank crisis refers to the collapse of First Republic Bank, one of the US' 20 biggest banks, which was taken over by the Federal Deposit Insurance Corporation (FDIC) on April 28. The bank was placed under imminent receivership as the FDIC said that there was "no more time" for a private sector rescue². This was the fourth bank failure in 2023, following Silicon Valley Bank, Silvergate Bank and Signature Bank, which all collapsed in Q1 due to liquidity issues and bad loans².

These events have had a negative impact on the stock market, as investors fear more instability and uncertainty in the banking sector. The SPX declined by nearly 344.63 points or 8.25% from January to April². However, they have also had a positive impact on Bitcoin price (BTC), which has maintained an inverse correlation with the stock market. Bitcoin price has risen by nearly 40% from January to April, reaching a new all-time high of $32,000 on April 29².

The Outlook for Stock and Crypto Markets in May-October Period

The outlook for both stock and crypto markets in the May-October period depends largely on how the Fed will handle its interest rate policy and how it will affect inflation expectations and risk appetite among investors. The Fed will hold its Federal Open Market Committee (FOMC) meeting on May 2-3, where it will announce its next rate decision and provide guidance on its future plans.

For example, if the Fed raises rates faster than expected, it could signal that inflation is getting out of control and that the Fed is behind the curve. This could hurt both stock and crypto markets, as higher interest rates would increase borrowing costs for companies and consumers, reduce profits and earnings growth for stocks, and reduce demand for risk-on assets such as Bitcoin.

On the other hand, if the Fed raises rates slower than expected or pauses its interest rate policy or starts to reduce its asset purchases, it could signal that inflation is under control and that the Fed is confident about the economic recovery. This could boost both stock and crypto markets, as lower interest rates would stimulate growth and spending, increase profits and earnings growth for stocks, and increase demand for risk-on assets such as Bitcoin.

Another factor that could influence both markets is the seasonal trend of investor behavior. As mentioned earlier, the May-October period is historically weak for stocks, as investors tend to reduce their exposure and take profits before the summer holidays. This could create selling pressure and volatility in the stock market, which could spill over to the crypto market as well. However, this trend may not be as strong this year, as investors may have more optimism and confidence due to the Covid-19 vaccination rollout and the reopening of the economy.

The Bottom Line

The saying "sell in May and go away" may not be a reliable strategy for either stock or crypto markets, as both markets are influenced by various factors that are dynamic and unpredictable. Investors should not base their decisions solely on this adage, but rather on their own analysis and research of the market conditions and opportunities. Both stock and crypto markets may face some challenges and uncertainties in 2023, especially due to the Fed's interest rate policy and the bank crises, but they may also benefit from some positive catalysts, such as the economic recovery and the seasonal trend. Therefore, investors should be prepared for both scenarios and adjust their portfolios accordingly.

References

(1) Is Bitcoin price set to shine as stock market investors "Sell in May .... https://www.fxstreet.com/cryptocurrencies/news/is-bitcoin-price-set-to-shine-as-stock-market-investors-sell-in-may-and-go-away-202304290034.

(2) Should You Sell Crypto in May and Go Away? - FullyCrypto. https://fullycrypto.com/should-you-sell-crypto-in-may-and-go-away.

(3) The S&P 500 Is Up 16%. It May Be the Year to 'Sell in May and Go Away .... https://www.barrons.com/articles/stock-market-sell-in-may-and-go-away-336a6e7f.

(4) Gritch.net on Twitter: "As #Traders say "Sell in May and Go Away," will .... https://twitter.com/gritchnet/status/1652465724755959808.