Sell in May?

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From Times staff writer Walter Hamilton:

Should investors sell in May and go away?

With the stock market entering a historically weak period, that’s the question facing investors following the market’s inchoate recovery over the last eight weeks.

Since 1945, the Standard & Poor’s 500 has fared far worse from May 1 through Oct. 31 than from Nov. 1 through April 30, according to research by Jeff Kleintop, chief market strategist at LPL Financial.

Excluding dividends, the index has risen an average 6.6% annually from November through April vs. only 1.5% the other six months, according to Kleintop. It has also suffered fewer losses from November through April -– dropping less than one-quarter of the time vs. more than one-third of the time from May to October. Hence, the old adage counseling investors to dump stocks before Memorial Day and return after Halloween. Is that the way to go this year?

The answer depends, of course, on whether you think the market downturn has truly ended or whether this is a bear-market rally that will give way to a renewed decline.

Through Monday, the S&P was up almost 11% from its March 10 low thanks to generally favorable economic news.

Kleintop, for one, recommends that investors stand pat.

Like other bulls, he believes that stocks will be propelled by generally strong earnings, the predicted consumer spending of tax-rebate checks and the first signs of a thaw in the credit markets.

Beyond that, he says, stocks often are volatile in the second and third quarters of presidential election years before jumping up in the fourth quarter.

“We do not recommend selling as we enter May –- instead, we believe the markets have stronger than the historical average gains in store for investors,” Kleintop wrote in a note to investors.

Money & Co. blogger Tom Petruno is on vacation this week. He returns May 12.