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“Sell in May and go away” is an old adage in the stock market, and it might be especially applicable this year. 

Markets have risen significantly of late, with the


S&P 500

up about 16% from a low point in early October. The gains are driven by expectations the Federal Reserve will soon pause its interest rate increases as the rate of inflation has declined, providing less incentive for the central bank to rein in economic demand. 

Now, the market is running into a wall. The S&P 500, at just over the 4100 level, has consistently seen sellers over the last several months come in to knock it lower when it nears the 4200 point. Something needs to change for the better for people to buy more at that level and send the index higher. 

The factor that could change it, though—a pause in rate increases—comes with a cost.

The fed funds futures market is pricing in a pause in hikes after a final increase in May, with the possibility of rate cuts at some point this year. But a pause—and certainly rate cuts—are indicative of a weakening economy. Already, the increase in gross domestic product has been declining, posing a risk to company earnings. 

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All of that risk is colliding with the month of May, which usually marks the start of trouble for the market anyway. The S&P 500’s average return in May dating back to 1928 has been a 0.1% dip, according to Dow Jones market data. The market eventually recovers in an average year, but not necessarily by leaps and bounds, and if this year is below average, it could be flat or down in the coming months.

From the end of April, though Labor Day, the S&P 500 averages a 3.1% gain. But when the market is worried about an impending recession, which remains a possibility today, it tends to struggle for a while. From the end of April through Labor Day in 2007, just before the financial crisis, the S&P 500 dropped 0.6%. 

Now isn’t a great time to load up on stocks historically—and that may be especially true this year. 

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Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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