With the first week of trading under our belt we thought it’d be appropriate to take a look at some history that might relate to the stock market in 2009. Mark Twain is noted for saying “History may not repeat itself, but it certainly does rhyme.” We took a look back at market action during the years that have some relationship with 2009. We think you will find the data interesting. All info was gleaned from the Stock Traders Almanac 2009 edition. If you like reviewing stock market history, this should be in your bookcase.
Presidential Election Cycle
Since 1833 the first year of the cycle, known as the post-election year, is the worst of the four -- turning in a 1.6% annual return. The next is known as the mid-term and that garnered a 4% return. The pre-election year is the best with 10.5%, followed by the election year with a 6.7% annual return (all data is for the Dow Industrials through 2007).
What we found interesting is that since 1950 the Democrats have had five post-election year opportunities, and Jimmy Carter’s -17.3% return in 1977 is the only blemish. The other four were all bucking the trend, turning out double digit returns. What truly caught our eye is that in the Kennedy and Clinton years the returns were the best. We do equate the hope and historic precedent with Obama’s administration similar to theirs and maybe with the thought of another fresh change the market might respond positively. Granted their terms were during a Secular Bull Market and now we possibly appear mired in a Secular Bear Market. An interesting note is that FDR’s initial year the Dow rose 66.7% in the midst of a Depression.
Decennial Cycle
Years ending in nine have had a 75% probability of finishing up for the year. That out performs the norm of 67% average of positive returns going back to 1880 for the Dow. The average return for the “nine” years is about 9%. What is somewhat disconcerting is that the worst years of this cycle are the ones ending in zero. Those years are up only a third of the time and the average return is -7.2%. The only other year with a negative return is the “seven” years. By far the best is the “five” years which had its first down year this decade when the Dow lost a fraction of a percent. The “five” years have averaged an eye-popping 28.3%
January’s First Five Days
When the first five day period of the year is up, there has been an 86% chance the year will be up. This is going back to 1950 using the S&P 500. The 22 years where the first five days are down have been a 50-50 proposition for the rest of the year. For the first five days this year the S&P 500 index was up a fraction of a percent, so we have that going for the Bulls. What is even more compelling is when January ends positively for the month. A positive January has led to a positive year 91.4% of the time. The S&P 500 started the year at 903.25
December Lows
The last indicator is one we want to keep an eye on for the next couple of months. If the Dow Industrials during the first quarter takes out the lows it made in the previous December, it has been an excellent warning signal for the market to continue lower. From 1950 -2007 the December lows were taken out 29 times and the market continued lower 27 times for an average loss of an additional 9.2%. Watch for 8118 level on the Dow as that is the December low.
Hopefully you find this data somewhat interesting. We will follow up on the numbers to let you know if we have a positive January and if we take out the December lows. Hope the resolutions are still in place.
Did You Know…
SCANDAL - An article questioning Bernie Madoff’s investment strategy (titled “Don’t Ask, Don’t Tell”) appeared in print on 5/07/01, 7 ½ years before his Ponzi scheme was discovered. When asked about the investment policy that he utilized, Madoff replied “it’s a proprietary strategy and I can’t go into it in great detail” (source: Barron’s).
Final Thought
“I always wanted to be somebody, but now I realize I should’ve been more specific” – Lily Tomlin
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