Stocks could see bull run on heels of bear market

NEW YORK -- As Nigel Tupper of Merrill Lynch aptly points out in a recent note to clients, "Some things in life are seasonal, such as clothing, whale migration and kids' swimming lessons." So too, he notes, are stock markets.

May has historically been a lousy time to have cash invested in stocks. Since 1950, May ranks eighth out of the 12 months in returns for the Standard & Poor's 500 index, says Stock Trader's Almanac. It also has the dubious distinction of kicking off the worst six-month period for stocks.

Last year, despite rising 1.1% in May, the S&P 500 fell 30.1% in the May-October period.

That's why some investors have a slogan: "Sell in May and go away!"

What about this year? Stocks have been on a tear since hitting a bear market low on March 9, rallying 36% — which meets the definition of a bull market (a gain of 20% or more). That run-up includes a 5.4% rise in the first four trading days of May, including a nearly 16-point gain Wednesday to 920.

But history also shows that the bullishness may continue. Sam Stovall, S&P's chief investment strategist, has unearthed a key statistic that provides a bullish spin to the sell-in-May signal. He found that stocks actually fare well in the six-month period beginning in May — after bear market bottoms. During or after the 14 bear markets since 1932, the S&P 500 has posted gains in 12 of the May-October periods, gaining 12.2% on average.

While history is a guide, "It's never gospel," notes Stovall. Thus, he says, investors "may be wiser to turn a deaf ear this year" to the sell-in-May adage, and buy and hold stocks instead. That strategy was profitable after bear markets in 1932, 1974, 1987 and 2002.

Stocks have been rising amid growing hopes that the economy, which has been in a recession for 17 months, is finding a bottom. Investors, betting on a recovery, have been adding steadily to holdings in reaction to increasing signs that the economy is improving, or at least not getting worse.