IT MAY be one of the stock market’s oldest adages, but it is one dealers may do well to heed.

“Sell in May and go away, come back on St Leger’s day” is still a winning long-term strategy, according to stock market historian David Schwartz. Over the past 40 years, an investor following that strategy would have avoided an average annual loss of 1.6 per cent. Conversely, putting money into the market between November and April would have produced an average annual gain of 9.7 per cent. “It has been a very useful rule of thumb to follow,” Mr Schwartz said.

That seasonal contrast is more stark in cash terms. An investor who started with £1,000 in November 1963 and sold at the end of the following April, and repeated the pattern every year, would now have £44,055. But that same £1,000, if invested in May 1964 and sold at the end of October, and repeated every year, would now be £517.

Of course, the timing is not exact. St Leger’s day refers to the horse race run on the second Saturday in September, which is typically the worst month of the year for stock market returns, meaning investors would be best advised to do nothing until at least the end of the month.

By the same token, seasonality has not worked so well since the start of the 1980s. Over the past 24 years stock markets have fallen in 12 years between May and October, but has also risen in 12 years.

The most unsettling omen this month is the phenomenon identified by Mr Schwartz which uses the performance of the stock market during the first four months of the year to predict the direction over the next six.

Since 1981 there have been nine times when the FTSE all-share index finished April in a range of between 0.1 per cent lower or 6.7 per cent higher than when it started the year. On all nine occasions it rose in the following six months.

However, to repeat that pattern, the FTSE all-share needed to finish April at 2,400.62 points or above, having started the year at 2,410.75. Unfortunately, it ended the month at 2,397.05.

Jitters on the stock market in recent days have been compounded by uncertainty over the economic outlook. April’s disappointing retail sales figures, a dip in the growth rate and a sharp rise in inflation will all be considered by the Bank of England’s Monetary Policy Committee (MPC), which will meet this Friday and next Monday to set rates for the coming month. The MPC has delayed its May meeting until after the election.

Most analysts predict that the Bank will keep interest rates on 4.75 per cent, and a rise in rates would trigger a renewed sell-off.

The surprise jump in consumer prices to a rate of 1.9 per cent in March, coupled with signs that the housing market is stabilising, may encourage more members of the MPC to vote for an increase than the two who did so in March and February. But with growth in the first quarter softening to 0.6 per cent, the slowest in more than a year, 43 out of 45 analysts polled by experts predict that rates will be unchanged.

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