CNBC has a story of doom up. It might come true. It might not. I really do not know as I do have a strong sense of disquiet at the moment. BUT I can tell you the rationale is a bit absurd. It is based on the 4 year cycle AND limiting such to 2nd terms. How many 2 term presidents have there been in last 40-50 years? Eisenhower. Reagan. Clinton. Bush. O does not count as you cannot yet measure his returns. So they give this massive sample size (50 years or something like it but neglect to say how few examples come out in sample). With Eisenhower, it is 4. Without, 3. And the average numbers are DREADFUL. Why? In the 3-4 cases. there was a CRASH. Oh? Think that might contaminate a sample? Ya think?
These historical examples are a bit absurd after having played with them. Throwing out data for this and that just makes it even more questionable. Six month returns are probably something that do matter on time of year, but not really sure. Monthly returns I understand as they capture average flows. I am not sure 6 monthly data do the same thing. Anyway, for fun, here is what we get:
All worst 6 month samples (April 30 to October 31): 56 (used since 1960)
Up periods: 35 for 63% (so 5 in 8)
Avg return without dividends: 90 bps (kinda low I agree)
4th year of Presidential Cycle: 14
Up periods: 11 (almost 80%)
Avg return: 1.9%
2nd Term: 4
Up: 1
Avg return: -6.7%
I would even go so far as to argue that the Central Bank, while not being all powerful, will ensure that the crash scenario does not occur. The next news cycle will be, with BOJ halting new efforts, about how the Central Banks are powerless. Count on it. Fear sells. It is coming. Sell! Sell! Sell! (tongue in cheek)
By the way, there are 7 horrid periods below -10%.
2008 bear crash. -30%
1974 energy crisis crash. -18%
2002 bear. -18%
2001 bear. -15%
1962 (Cuba?). -13%
1987 Crash. -13%
1966 - not sure why. -12%
There are 8 periods at or above 10% (counting 9.9% as 10%):
1980 - ???. 20%
2009 - new bull. 19%
1982 - new grand bull. 15%
2003 - new cyclical bull. 15%
1997 - strong bull trend. 14%
1995 - strong bull trend. 13%
2013 - rebound? 10%
1989 - late 80s bull. 10%
Interestingly, most of these negative periods, I remember with some precision the crisis or catastrophe. Not so on the bull moves. Is this part of the fear? Memories stick. Median returns for the whole period btw are 2%. And isn't this the best measure of overall seasonal tendencies?
Lastly, just running the modern era since 1980 yields 2.26% with 2/3 up. Non 4th years dominate with 2.62% overall returns vs. 1.18%. But only 63% of non 4th years are up while fully 78% of 4th years are up. What kills 4th years is 2008. The non-second term 4th years are 6 of 6 with 5.92% avg return btw. The 2nd term average is -8.31% on three samples (lose Eisenhower).
Jon
PS Speaking of number fun. These guys calling for awful returns going forward because we are so out there in Cuckoo land right now will probably some day be right. But returns have kinda sucked since 2000 already. It is not like we are hitting lights out. |
