Market Recovery vs. the "Sell in May and Go Away" Adage — Time to Challenge Narratives (Part I)?

Welcome back to AI in Investment Research & Finance, your weekly briefing on how smart Artificial Intelligence (AI) prompts can lead to sharper, more actionable market insights.

Every spring, the adage “Sell in May and go away” resurfaces as one of Wall Street’s most famous seasonal sayings. It suggests exiting the market in May to avoid historically weaker summer returns. But in 2025, could clinging to seasonal wisdom mean walking away from opportunity?

In recent days, most developed markets have been advancing, while tech shares have been leading with double-digit gains. So the real question is: if you decide sell in May and go away for the summer, could you be exiting the market just as the rebound gains traction? As we explore this important topic in two parts, please stay tuned for more prompts later this week.

🧠 What We’re Seeing in May 2025

• The S&P 500 is up about 5.7% month-to-date; the Nasdaq 100 has gained over 8%, mostly led by AI and large-cap tech stocks.

• Q1 earnings have been stronger than expected.

In short: So far in May, shares are not retreating, but rather advancing strongly. Could the seasonal playbook be out of sync with what markets are actually doing?

📊 The Data Doesn’t Fully Support the Adage Anymore

A 2025 study by American Century Investments reviewed 50 years of market history. Average returns from May to October were +3.86%, challenging the notion that summer months consistently underperform. Their study also shows that a buy-and-hold strategy over this period significantly outperforms seasonal switching strategies that exit the market in May and re-enter in November.

Meanwhile, sector performance is increasingly nuanced. Some sectors, like energy and value stocks, have rallied in certain May–October periods, but so have tech and AI leaders. Broad seasonal patterns no longer capture this diversity.

In addition, many investors who “sold in May” missed out on surprise rallies driven by economic data or Fed policy shifts.

Bottom line: For long-term investors, seasonal rules of thumb could potentially be costly.

⚙️ Use AI to Test the Myth, Not Just Repeat It

This is where research helped by AI may shine. You don’t need to guess whether “Sell in May” holds. You can test it, by prompting AI models to backtest, compare historical patterns and analyze macro overlays.

Here are two prompts to help you (or your team) break the pattern:

🛠️ Prompt 1: Is 2025 Breaking the Pattern?

"Act as an equity analyst. Evaluate the performance of major global indices (i.e., S&P 500, Nasdaq 100, FTSE 100 and Euro Stoxx 50) during May 2025 compared to their historical May averages from 2010–2024. Discuss macro drivers like inflation, interest rate expectations and earnings surprises. Conclude whether 2025 is breaking the 'Sell in May' trend. Support your analysis with specific data and include references to any news, reports or charts used."

📌 Purpose: To assess whether this year truly challenges the seasonal norm and if it’s time to rethink your strategy.

🛠️ Prompt 2: Evaluate the Seasonal Adage in a Recovery Year

“Act as a senior market strategist to assess the historical performance of the S&P 500 index during May–October periods compared to November–April over the past 25 years. Identify years when markets were in recovery phases following major downturns (e.g., 2003, 2009 and 2020). Use data from Bloomberg, S&P Dow Jones Indices and MSCI. Focus only on calendar-year periods where the US Federal Reserve was easing or US inflation was declining.”

📌 Purpose: To test if seasonal strategies still apply in macro recovery phases—when investor psychology and central bank action can shift the market rhythm entirely.

📈 Final Thoughts

Historical adages can guide, but they shouldn’t blind. With tools like AI platforms and decades of data at your fingertips, researching the markets has become easier. “Sell in May” isn’t necessarily dead, but it may not be fully relevant in a macro-driven, data-rich market. And that’s something worth prompting.

Stay tuned for next edition, where we’ll explore new AI prompts.

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📈 AI in Markets: Key Trends This Week

🧠 IBM Unveils Rapid AI Agent Development and Hybrid Integration
At THINK 2025, IBM CEO Arvind Krishna announced watsonx Orchestrate, letting businesses build AI agents in under five minutes with 150+ prebuilt agents and integrations across 80+ apps. IBM also launched LinuxONE 5, a secure platform processing 450 billion AI inferences daily. Krishna declared the era of AI experimentation over, shifting focus to scalable AI that delivers real business results.

📊 Elon Musk’s xAI Nears $120 Billion Valuation in New Funding Talks

Elon Musk’s AI startup, xAI, is in early-stage negotiations to raise up to $20 billion, potentially boosting its valuation to $120 billion-up from $80 billion just over a month ago. This follows OpenAI’s recent $300 billion valuation round. xAI remains closely integrated with Musk’s social media platform X, with its chatbot Grok leveraging data from X users. Bankers have indicated that xAI contributes to a portion of X’s revenue this year, highlighting Musk’s growing AI ecosystem.

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