Investors could be forgiven for thinking May is a terrible month for stocks. After all, most of us have heard the expression "sell in May and go away."
Yet, history paints a different picture than the snappy quote. Moreover, the most recent month of May sent out signals that the stock market is gearing up for a big run-up over the next 12 months. Here's why.
Image source: Getty Images.
What history says follows an exceptional performance by the S&P 500 in May
First off, last month wasn't just another decent month for the stock market. It was, in many ways, historic. Consider this: In May, the S&P 500 (^GSPC 1.11%) advanced by 6.2%. That's an excellent return, particularly considering that the average annual return for the S&P 500 since its inception in 1957 is about 9%.
What's more, last month's staggering 6.2% return represented the second-best May performance ever by the benchmark index -- surpassed only by a 9.2% rally in May 1990. Indeed, dating back to 1957, the index had only advanced by more than 5% in May on seven occasions. Before last month, the most recent came in 2009. In other words, May 2025 was a banger month on Wall Street.
However, investors may be even more encouraged by what has followed seven prior occasions. After a May when the S&P 500 registered a gain of 5% or more, the S&P 500 generated an average 12-month return of nearly 20%.
| Year | S&P 500 Return in May | S&P 500 Return in 12 Months After |
|---|---|---|
| 1985 | 5.4% | 30.5% |
| 1986 | 5% | 17.3% |
| 1990 | 9.2% | 7.9% |
| 1997 | 5.9% | 28.6% |
| 2003 | 5.1% | 16.3% |
| 2009 | 5.3% | 18.5% |
| 2025 | 6.2% | ? |
Data source:
Moreover, in all six prior occasions, the S&P 500's return after 12 months was positive. The lowest return was a 7.9% gain in 1990; the best was a 30.5% rally in 1985.
What was behind May's big move, and can it continue?
Regardless of past performance, future events will determine where the stock market goes over the next 12 months. So, what drove up stock prices in May, and what risks should investors look for?
In short, the S&P 500's excellent May performance was led by several catalysts, including:
- Tame readings on U.S. inflation and unemployment
- Better-than-expected earnings by corporations
- Encouraging updates related to U.S. trade policy
First, the current U.S. inflation rate of 2.4% remains near the Fed's 2% target. That's significantly below the rates from a few years ago, when inflation was over 6%. Unless inflation rises, there's little risk that the Fed will need to hike rates soon. Furthermore, the unemployment rate remains steady around 4.2% -- indicating a stable jobs market. Both figures are bullish for the stock market.
Second, the most recent earnings season didn't disappoint. Companies continue to beat sales and profit expectations, with the tech and healthcare sectors leading the way. According to an analysis by J.P. Morgan, fully 77% of companies beat estimates.
Finally, there's U.S. trade policy. In particular, May was a bullish month on the trade front. The aforementioned earnings season indicates that the Trump administration's new tariff policy hasn't yet had meaningful negative impacts. In addition, the Trump administration's pause on reciprocal tariffs -- instituted in April -- remains in effect.
Finally, there are reports of progress in negotiations -- or, in some cases, outright agreements -- between the U.S. and key trade partners, including China, the U.K., Canada, Mexico, and Japan.
All that said, the future is never certain. A setback in trade negotiations, higher-than-expected impacts from existing tariffs, or disappointing economic data could all lead to a sharp correction in the stock market. So, one would be wise to adopt a conservative strategy that puts money to work but doesn't try to time the market to perfection.
