May 08, 2012 at 09:27 AM EDT
Be Careful of Claims About Election Years!
Tuesday, May 8, 9:25 a.m. As is the case every election year, I’m seeing and hearing a lot about how election years are always positive, and getting a lot of e-mails from non-subscribers asking if the market’s seasonality ever works in election years, since they’re always positive for investors. I can tell you how our [...]

Tuesday, May 8, 9:25 a.m.

As is the case every election year, I’m seeing and hearing a lot about how election years are always positive, and getting a lot of e-mails from non-subscribers asking if the market’s seasonality ever works in election years, since they’re always positive for investors.

I can tell you how our Seasonal Timing Strategy worked in the three election years that have taken place since STS was introduced in 1999.

The years 2000, 2004, and 2008 were election years.

As shown in the table in the Sample issue of our newsletter, or in its description (Seasonal Timing Strategy) on the Street Smart Report website, our STS was up 2.1% in 2000, when the S&P 500 was down 9.1% for the year (and the Nasdaq plunged 39%). In 2004, our STS was up 8.1%, but the Dow was up only 5.5%. And in 2008, our STS was down only 3.6% when the S&P 500 was down 36% for the year, and the Dow lost 31%. So our version of seasonality certainly worked in the way it was designed even in election years.

Regarding election years in general, as subscribers know, five months ago, in December, I provided a study of election years going back to 1920 for subscribers to keep in mind for this year. You can see it by clicking on this link. The Truth About Election Years! Dec. 16, 2011. It includes a table of each election year since 1920, the incumbent president at the time, his party affiliation, whether the market was up or down for the year, and by how much.

Summing it up:

Of the 23 election years, 15 were positive, or 66.7%.

However, ignoring whether or not they were election years, over those 91 years, 62 were up anyway, or 68%.

Conclusion: The market was up in 68% of years overall, and 67% of election years. So, whether it was an election year or not had no effect on the market’s performance.

Of the 23 election years, the market was up 63.3% of the years when a Democrat was the incumbent president, and 66.7% when it was a Republican.

Conclusion: It makes no difference which party is in the White House at the time of the election.

A BIg-Thank-You to:

Alan Newman, editor of Stock Market Crosscurrents (www.cross-currents.net), for his tribute to our Seasonal Timing System.

In his current issue, Alan covers the market’s seasonality and the ‘Sell in May and Go Away’ phenomenon, in which the market has a very strong history of making most of its gains between Nov. 1 and May 1, and experiencing most of its corrections in the opposite season.

He includes an interesting chart showing how $10,000 invested in the Dow index in 1950, but only in the favorable season each year, would have grown to $657,000 by now, or an average of 14.1% a year. But $10,000 invested only in the unfavorable seasons would be worth only $9,028.

Alan says,

“The pattern of favorable and unfavorable seasonality was initially uncovered by both Norm Fosbach and Yale Hirsch. The baton was later taken up and vastly improved upon by our colleague Sy Harding, who coupled seasonality with a common technical indicator. As distinctive as our chart above might be, Harding’s investment formula based on seasonality has an even more astonishing record.”

Quote of the day.

Confirmation bias is the tendency to see things in your environment that confirm your pre-conceived ideas, and not see things that conflict with what you already believe. From ‘Defending Jacob’, a novel.

To read my weekend newspaper column ‘Europe Is a Bigger Problem Than the Slowing U.S. Economy’ Click here.

Subscribers to Street Smart Report: There is a very important in-depth ‘Global Markets’ update from last evening in the subscribers’ area of the Street Smart Report website tomorrow. The regular in-depth ‘Mid-Week U.S. Market Signals and Recommendations’ update will be there some time tomorrow.

Yesterday in the U.S. Market.

A mixed day. There was no follow through to last week’s decline in spite of the Sunday elections in Greece and France, and the very negative reactions in Asian markets.

The Dow was down 68 points at its low, but recovered to close down only 29 points, or 0.2%. The rest of the market indexes were also down in the early going but they recovered enough to close up fractionally. Volume was light at 0.75 billion shares traded on the NYSE.

The Dow closed down 29 points, or 0.2%. The S&P 500 closed up 0.1%. The NYSE Composite closed up 0.2%. The Nasdaq closed up 0.1%. The Nasdaq 100 closed up 0.1%. The Russell 2000 closed up 0.2%. The DJ Transportation Avg. closed up 0.3%. The DJ Utilities Avg closed down 0.1%.

Gold closed down $6 an ounce at $1,638 an ounce.

Oil closed down $.46 a barrel at $98.02 a barrel.

The U.S. dollar etf UUP closed up 0.1%.

The U.S. Treasury bond etf TLT closed unchanged.

Yesterday in European Markets.

European markets were down sharply in the early going yesterday in reaction to the elections in France and Greece, but closed mixed. London closed down 1.9%. Germany recovered from being down more than 2% to being up 0.1%. France recovered to close up 1.6%.

Asian Markets Plunged Sunday Night But Recovered Fractionally Last Night.

The DJ Asia-Pacific Index plunged 2.1% Sunday night, with individual markets closing down as much as 2.2% (Australia), 2.8% (Japan) and 2.6% (Hong Kong).

But they bounced back up fractionally last night, with the DJ Asia-Pacific Index closing up 0.2%

Among individual markets last night:

Australia closed up 0.3%. China closed down 0.1%. Hong Kong closed down 0.3%. India plunged 2.2%. Indonesia closed up 0.5%. Japan closed up 0.7%. Malaysia closed up 0.4%. New Zealand closed up 0.63. South Korea closed up 0.5%. Singapore closed up 0.2%. Taiwan closed up 0.1%. Thailand closed up 0.3%.

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Markets This Morning:

European markets are down again this morning. The London FTSE is down 0.2%. The German DAX is down 0.7%. France’s CAC is down 1.6%.

Oil is down $1.04 a barrel at $96.90.

Gold is plunging $23 an ounce at $1,616.

This Morning in the U.S. Market:

This week is a very light week for potential market-moving economic reports, almost none. To see the full list and times for each release click here, and look at the left side of the page it takes you to.

Yesterday it was reported that U.S. consumers, who had begun to cut back on debt in the aftermath of the 2008-2009 financial crisis, continue to load up on debt in recent months. Consumer debt rose by $21.3 billion in March, the 7th straight month of increases. It was double the consensus forecast for an increase of $10 billion.

This morning it was reported that the NFIB Small Business Optimism Index rose to 94.5 in March from 92.5 in February, which returns it to the same level as February of last year.

Concerns over the situations (plural) in Europe are the new focus of the market, replacing the initial reaction to Friday’s dismal jobs report. 

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 70 points or so in the early going.

To read my weekend newspaper column ‘Europe Is a Bigger Problem Than the Slowing U.S. Economy’ Click here.

Subscribers to Street Smart Report: There is a very important in-depth ‘Global Markets’ update from last evening in the subscribers’ area of the Street Smart Report website tomorrow. The regular in-depth ‘Mid-Week U.S. Market Signals and Recommendations’ update will be there some time tomorrow.

I’ll be back with the next regular blog post on Thursday morning at 9:25 a.m.

Non-subscribers: We believe we can help you not only make more profits, but just as importantly avoid losses, and at very reasonable cost!

Our portfolios were up an average of 9.4% last year, our Seasonal Timing Strategy up 15.8%, in a flat year (S&P 500 unchanged for year) when many, if not most, managers and funds were down for the year. We were on Hulbert’s Ten Best Newsletters of the Year list for the 2nd time in 4 years, and #4 Long-Term Market-Timer in Timer Digest’s rankings. And we are off to an even better start this year, now ranked #1 Long-Term Market Timer so far in 2012.

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