Monday, November 10, 2014

Political & Other Cycles Driving S&P 500, Maybe (excerpt)

Last week, I observed that the one-year periods following mid-term congressional elections and third years of presidential terms have been consistently very bullish for stocks. A few of our accounts reminded me that years ending in “5” have also been consistently very positive ones for stocks. Let’s review these cycles:

(1) Mid-term elections. Last Monday, I noted that our analysis of mid-term elections found that since 1942, the S&P 500 rose on average by 8.5% for the subsequent three-month periods, 15.0% for six months, and 15.6% for 12 months. There was only one out of the 45 periods that was down, and just for three months! One has to go back to Depression-era market losses to find two periods when this indicator did not give consistently positive results.

(2) Presidential third terms. I extended last week’s analysis of the presidential cycle from 1951 back to 1928 using daily data for the S&P 500. The average gain for the third years of presidential terms was 13.4%, well ahead of the averages for the first (5.2%), second (4.5), and fourth years (5.5). Of the 21 third years, only two of them were down during the Great Depression. The 22 first years and 21 second years each included 10 downers. The 21 fourth years included six negative ones.

(3) Years ending in “5.” There have been eight years ending in “5” since the start of our daily S&P 500 data. They all have been up with an average gain of 25.3% ranging from 3.0%-41.4%. By the way, the two-year gain for years ending in “5” and “6” averaged 37.6%, with seven of the eight periods having double-digit gains and only one period down by 5.2%.

Today's Morning Briefing: Gridlock & Goldilocks. (1) Three bullish cycles: Mid-term elections, third years of presidential terms, and years ending in “5.” (2) An anti-progressive, pro-business vote. (3) Review of Republican sweep. (4) Second “shellacking.” (5) Gridlock is bullish. Shutdowns are not. (6) Madison’s biggest fan. (7) McConnell’s impressive deal-making resume. (8) Employment report pushes the Fed to tighten sooner, but doves likely to focus on subdued wages. (9) Price inflation may be keeping lid on wage inflation. (10) “Stay Home” still the way to go. (11) “Interstellar” (-). (More for subscribers.)

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