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CONTENTS Cover INTRODUCTION TO THE FIFTY-THIRD EDITION 2020 OUTLOOK 2020 STRATEGY CALENDAR
JANUARY ALMANAC FEBRUARY ALMANAC MARCH ALMANAC APRIL ALMANAC
MAY ALMANAC JUNE ALMANAC JULY ALMANAC
AUGUST ALMANAC OCTOBER ALMANAC NOVEMBER ALMANAC DECEMBER ALMANAC
DIRECTORY OF TRADING PATTERNS AND DATABANK DOW JONES INDUSTRIALS MARKET PROBABILITY CALENDAR 2020 RECENT DOW JONES INDUSTRIALS MARKET PROBABILITY CALENDAR 2020 S&P 500 MARKET PROBABILITY CALENDAR 2020 RECENT S&P 500 MARKET PROBABILITY CALENDAR 2020 NASDAQ COMPOSITE MARKET PROBABILITY CALENDAR 2020 RECENT NASDAQ COMPOSITE MARKET PROBABILITY CALENDAR 2020 RUSSELL 1000 INDEX MARKET PROBABILITY CALENDAR 2020
RUSSELL 2000 INDEX MARKET PROBABILITY CALENDAR 2020 DECENNIAL CYCLE: A MARKET PHENOMENON PRESIDENTIAL ELECTION/STOCK MARKET CYCLE:THE 186-YEAR SAGA CONTINUES DOW JONES INDUSTRIALS BULL and BEAR MARKETS SINCE 1900 STANDARD & POOR'S 500 BULL and BEAR MARKETS SINCE 1929NASDAQ COMPOSITE SINCE 1971 A TYPICAL DAY IN THE MARKET THROUGH THE WEEK ON A HALF-HOURLY BASIS TUESDAY MOST PROFITABLE DAY OF WEEK NASDAQ STRONGEST LAST 3 DAYS OF WEEK S&P DAILY PERFORMANCE EACH YEAR SINCE 1952 NASDAQ DAILY PERFORMANCE EACH YEAR SINCE 1971 MONTHLY CASH INFLOWS INTO S&P STOCKS MONTHLY CASH INFLOWS INTO NASDAQ STOCKS NOVEMBER, DECEMBER AND JANUARY: YEAR'S BEST THREE-MONTH SPAN NOVEMBER THROUGH JUNE: NASDAQ'S EIGHT-MONTH RUN DOW JONES INDUSTRIALS ANNUAL HIGHS, LOWS & CLOSES SINCE 1901 S&P 500 ANNUAL HIGHS, LOWS & CLOSES SINCE 1930 NASDAQ ANNUAL HIGHS, LOWS & CLOSES SINCE 1971 RUSSELL 1000 ANNUAL HIGHS, LOWS & CLOSES SINCE 1979 RUSSELL 2000 ANNUAL HIGHS, LOWS & CLOSES SINCE 1979 DOW JONES INDUSTRIALS MONTHLY PERCENT CHANGES SINCE 1950
DOW JONES INDUSTRIALS MONTHLY POINT CHANGES SINCE 1950 DOW JONES INDUSTRIALS MONTHLY CLOSING PRICES SINCE 1950 STANDARD & POOR'S 500 MONTHLY PERCENT CHANGES SINCE 1950 STANDARD & POOR'S 500 MONTHLY CLOSING PRICES SINCE 1950 NASDAQ COMPOSITE MONTHLY PERCENT CHANGES SINCE 1971 NASDAQ COMPOSITE MONTHLY CLOSING PRICES SINCE 1971 RUSSELL 1000 INDEX MONTHLY PERCENT CHANGES SINCE 1979 RUSSELL 1000 INDEX MONTHLY CLOSING PRICES SINCE 1979 RUSSELL 2000 INDEX MONTHLY PERCENT CHANGES SINCE 1979 RUSSELL 2000 INDEX MONTHLY CLOSING PRICES SINCE 1979 10 BEST DAYS BY PERCENT AND POINT 10 WORST DAYS BY PERCENT AND POINT 10 BEST WEEKS BY PERCENT AND POINT 10 WORST WEEKS BY PERCENT AND POINT 10 BEST MONTHS BY PERCENT AND POINT 10 WORST MONTHS BY PERCENT AND POINT 10 BEST QUARTERS BY PERCENT AND POINT 10 WORST QUARTERS BY PERCENT AND POINT
10 BEST YEARS BY PERCENT AND POINT 10 WORST YEARS BY PERCENT AND POINT STRATEGY PLANNING AND RECORD SECTION PORTFOLIO AT START OF 2020 ADDITIONAL PURCHASES
ADDITIONAL PURCHASES SHORT-TERM TRANSACTIONS LONG-TERM TRANSACTIONS INTEREST/DIVIDENDS RECEIVED DURING 2020 BROKERAGE ACCOUNT DATA 2020 WEEKLY PORTFOLIO PRICE RECORD 2020 (FIRST HALF) WEEKLY PORTFOLIO PRICE RECORD 2020 (SECOND HALF) WEEKLY INDICATOR DATA 2020 (FIRST HALF) WEEKLY INDICATOR DATA 2020 (SECOND HALF) MONTHLY INDICATOR DATA 2020 PORTFOLIO AT END OF 2020 IF YOU DON'T PROFIT FROM YOURINVESTMENT MISTAKES, SOMEONE ELSE WILL PERFORMANCE RECORD OF RECOMMENDATIONS INDIVIDUAL RETIREMENT ACCOUNT (IRA): MOST AWESOME MASS INVESTMENT INCENTIVE EVER DEVISED G. M. LOEB'S “BATTLE PLAN” FOR INVESTMENT SURVIVAL G. M. LOEB'S INVESTMENT SURVIVAL checklist END USER LICENSE AGREEMENT
INTRODUCTION TO THE FIFTY-THIRD EDITION Once again we have the honor of introducing the Fifty-Third Edition of the Stock Trader's Almanac . The Almanac provides you with the necessary tools to invest successfully in the twenty-first century. J.P. Morgan's classic retort “Stocks will fluctuate” is often quoted with a wink-of-the-eye implication that the only prediction one can make about the stock market is that it will go up, down, or sideways. Many investors agree that no one ever really knows which way the market will move. Nothing could be further from the truth. We discovered that while stocks do indeed fluctuate, they do so in well-defined, often predictable patterns. These patterns recur too frequently to be the result of chance or coincidence. How else do we explain that since 1950 the Dow has gained 23053.95 points during November through April compared to just 3324.63 May through October? (See page 52.) The Almanac is a practical investment tool. It alerts you to those little-known market patterns and tendencies on which shrewd professionals enhance profit potential. You will be able to forecast market trends with accuracy and confidence when you use the Almanac to help you understand: How our Presidential Elections affect the economy and the stock market—just as the moon affects the tides. Many investors have made fortunes following the political cycle. You can be sure that money managers who control billions of dollars are also political cycle watchers. Astute people do not ignore a pattern that has been working effectively throughout most of our economic history. How the passage of the Twentieth Amendment to the Constitution fathered the January Barometer. This barometer has an outstanding record for predicting the general course of
the stock market each year, with only ten major errors since 1950, for an 85.5% accuracy ratio. (See page 16.) Why there is a significant market bias at certain times of the day, week, month and year. Even if you are an investor who pays scant attention to cycles, indicators and patterns, your investment survival could hinge on your interpretation of one of the recurring patterns found within these pages. One of the most intriguing and important patterns is the symbiotic relationship between Washington and Wall Street. Aside from the potential profitability in seasonal patterns, there's the pure joy of seeing the market very often do just what you expected. The Stock Trader's Almanac is also an organizer. Its wealth of information is presented on a calendar basis. The Almanac puts investing in a business framework and makes investing easier because it: Updates investment knowledge and informs you of new techniques and tools. Is a monthly reminder and refresher course. Alerts you to both seasonal opportunities and dangers. Furnishes a historical viewpoint by providing pertinent statistics on past market performance. Supplies forms necessary for portfolio planning, record keeping and tax preparation.
The WITCH Icon signifies THIRD FRIDAY OF THE MONTH on calendar pages and alerts you to extraordinary volatility due to expiration of equity and index options and index futures contracts. Triple-witching days appear during March, June, September and December.
The BULL Icon on calendar pages signifies favorable trading days based on the S&P 500 rising 60% or more of the time on a particular trading day during the 21-year period January 1998 to December 2018. The BEAR Icon on calendar pages signifies unfavorable trading days based on the S&P falling 60% or more of the time for the same 21-year period. Also, to give you even greater perspective, we have listed next to the date every day that the market is open the Market Probability numbers for the same 21-year period for the Dow (D), S&P 500 (S) and NASDAQ (N). You will see a “D,” “S” and “N” followed by a number signifying the actual Market Probability number for that trading day based on the recent 21-year period. On pages 121–128 you will find complete Market Probability Calendars, both long term and 21-year for the Dow, S&P and NASDAQ, as well as for the Russell 1000 and Russell 2000 indices. Other seasonalities near the ends, beginnings and middles of months; options expirations, around holidays and other times are noted for Almanac investors' convenience on the weekly planner pages. All other important economic releases are provided in the Strategy Calendar every month in our e-newsletter, Almanac Investor , available at our website www.stocktradersalmanac.com . One-year seasonal pattern charts for the Dow, S&P 500, NASDAQ, Russell 1000, and Russell 2000 appear on pages 40, 42 and 44. There are three charts each for the Dow and S&P 500 spanning our entire database starting in 1901 and one each for the younger indices. As 2020 is a presidential election year, each chart contains typical election year performance compared to all years. Over the past few years our research had been restructured to flow better with the rhythm of the year. This has also allowed us more room for added data. Again, we have included historical data on the Russell 1000 and Russell 2000 indices. The Russell 2K is an excellent proxy for small- and mid-caps, which we have used over the
years, and the Russell 1K provides a broader view of large caps. Annual highs and lows for all five indices covered in the Almanac appear on pages 149–151. Top 10 Best & Worst days, weeks, months, quarters and years for all five indices are listed on pages 164–173. In order to cram in all this material, some of our Record Keeping section has been cut. We have converted many of these paper forms into computer spreadsheets for our own internal use. As a service to our faithful readers, we are making these forms available at our website www.stocktradersalmanac.com . Election years have been the second best year of the four-year cycle while tenth years of decades have been the worst, so 2020 promises to be volatile, but more than likely a winner. The last nine tenth years of decades appear on page 24. You can find “2020 Presidential Election Year Perspectives” on page 26, all the market charts of election years since the Depression on page 30, “How the Government Manipulates the Economy to Stay in Power” on page 32, “Incumbent Party Wins & Losses” on page 78 and “Only Two Losses Last 7 Months of Election Years” on page 80. In our 2020 Outlook on pages 8–9 we lay out a more bullish case for 2020 than most are expecting. “How to Trade Best Months Switching Strategies” appears on page 36. “Summer Market Volume Doldrums Drives Worst Six Months” is updated on page 48. Sector seasonalities, including several consistent shorting opportunities, appear on pages 92–96. We are constantly searching for new insights and nuances about the stock market and welcome any suggestions from our readers. Have a healthy and prosperous 2020! 2020 OUTLOOK Bareknuckle politics promises to heighten market volatility in 2020 as the battle for control in Washington kicks into high gear. But even the most pugnacious campaigns by both parties will be hard-pressed to derail this secular bull market. Incumbency is a powerful phenomenon and the driving force behind the 4-year presidential election cycle. This quadrennial quadrille is what has made the pre-
election year the best year of the 4-year cycle (page 130). Since 1943 the third year of the cycle is up 15.0% on average for the Dow and 15.4% for the S&P 500. Since 1971 NASDAQ averages a whopping 28.8% in the third year of the 4-year cycle. At the midpoint of 2019 the stock market is having a banner year, following seasonal and 4-year cycle patterns quite closely. After the rare loss in pre-election year 2015 (The first for the Dow since 1939!) and the above-average gains in post-election year 2017, the market suffered a more typical midterm year selloff in late 2018, which set the stage for a solid upside move in 2019. At this writing there are still six months remaining in 2019, but so far the U.S. stock market has been tracking the historical seasonal pattern for pre-election years practically to a T. When our January indicator trifecta of the Santa Claus Rally (page 116), First Five Days (page 14) and January Barometer (page 16) indicators all came in positive at the end of January 2019, we wrote in our Almanac Investor eNewsletter that the “Next eleven months and full-year 2019 performance is expected to be more in line with typical pre-election returns.” The long-term track record of the trifecta is rather impressive, posting full-year gains in 27 of the 30 prior years, with an average gain for the S&P 500 of 17.1%. 2019 put on its best first half market performance for the Dow since 1999, the S&P 500 since 1997 and NASDAQ since 2003. As we noted on our blog on July 1, 2019, “Jumbo First Half Gains Usually Continue After a Pause.” On average the market was unable to match first half gains during the second half, gaining little ground during Q3, which should come as no surprise given the infamous negative history of August and September. But after that Q4 posts solid gains, so we expect a run to new highs by year-end. As for our outlook for 2020, we could easily join the throng of skeptics and bears that are forecasting recession and a down market for 2020 and stoke investors' fears, but we have three main observations that have guided us toward a more bullish outlook for election year 2020. 1. The Power of Incumbency. As you can see in the accompanying chart the stock market has performed much better in election
years when a sitting president is running for reelection. Since 1949 the Dow is up 10.1% in election years when a sitting president is running for reelection vs. 5.3% in all election years and –1.6% in election years with an open field and no incumbent commander-in-chief running for a second term. 2. Fiscal and Monetary Policy Synchronicity. After several years of conflicting policy, the Federal Reserve and the U.S. federal government are finally getting in synch. Interest rates are historically low and the Fed is on the brink of lowering rates at the same time as fiscal policy has been lowering taxes and increasing spending. These dual pro-growth policies should continue to propel the stock market higher. 3. Recent Pattern of 50% Moves Following Extended Consolidations. An interesting pattern has materialized following the past few market consolidation phases. After bouncing around a base for 2–3 years the S&P 500 has rallied 50% higher. Following the 2009 secular bear market low the market rose to the 1200 level on the S&P 500 in April 2010 and then moved sideways for more than 2 years up and down and around 1200. Then it took off in election year 2012, rising 50% to 1800 by November 2013. S&P 500 stayed close to 1800 until the mini-bear market bottom in February of election year 2016. Then it jumped up another 50% to 2700 in January 2018. Since then S&P has moved back and forth through 2700 dozens of times. If this pattern continues, the next 50% move higher can be expected to gain momentum in 2020. These gains will of course not come without pause and correction. The world stage will continue to feature some challenging geopolitical, diplomatic, trade-related and economic storylines. U.S. presidential campaign politics will increasingly focus on domestic political disputes, standoffs and unfinished business. But when all is said and done, we expect 2020 to be an up year based on the historical patterns and cycles and current favorable policies, healthy economics and positive market behavior. This all points to the likelihood that our May 2010 Super Boom Forecast when the Dow was around 10,000 for the Dow to reach 38,820 by the year 2025
may be ahead of schedule. (Check out the update of the Super Boom Forecast in the April 11, 2019, subscriber alert on our website.) —Jeffrey A. Hirsch, July 11, 2019
2020 STRATEGY CALENDAR
January Barometer predicts year's course with .739 batting average (page 16) 12 of last 17 presidential election years followed January's direction Every down January on the S&P since 1950, without exception , preceded a new or extended bear market, a flat market, or a 10% correction (page 22) S&P gains January's first five days preceded full-year gains 81.8% of the time, 14 of last 17 presidential election years followed first five days' direction (page 14) November, December and January constitute the year's best three- month span, a 4.2% S&P gain (pages 50 & 147) January NASDAQ powerful 2.8% since 1971 (pages 58 & 148) “January Effect” now starts in mid-December and favors small-cap stocks (pages 110 & 112) 2009 has the dubious honor of the worst S&P 500 January on record Dow gained more than 1000 points in 2018 & 2019
DECEMBER 2019/JANUARY 2020
JANUARY’S FIRST FIVE DAYS: AN EARLY WARNING SYSTEM The last 44 up First Five Days were followed by full-year gains 36 times for an 81.8% accuracy ratio and a 13.3% average gain in all 44 years. The eight exceptions include flat years 1994, 2011, 2015, four related to war, and 2018. Vietnam military spending delayed the start of the 1966 bear market. Ceasefire imminence early in 1973 raised stocks temporarily. Saddam Hussein turned 1990 into a bear. The war on terrorism, instability in the Mideast and corporate malfeasance shaped 2002 into one of the worst years on record. In 2018 a partially inverted yield curve and trade tensions triggered a fourth quarter sell-off. The 25 down First Five Days were followed by 14 up years and 11 down (44.0% accurate) and an average gain of 1.0%. In presidential election years this indicator has a solid record. In the last 17 presidential election years, 14 full years followed the direction of the First Five Days. THE FIRST-FIVE-DAYS-IN-JANUARY INDICATOR
THE INCREDIBLE JANUARY BAROMETER (DEVISED 1972): ONLY Ten SIGNIFICANT ERRORS IN 69 YEARS Devised by Yale Hirsch in 1972, our January Barometer states that as the S&P 500 goes in January, so goes the year. The indicator has registered ten major errors since 1950, for an 85.5% accuracy ratio . Vietnam affected 1966 and 1968; 1982 saw the start of a major bull market in August; two January rate cuts and 9/11 affected 2001; the anticipation of military action in Iraq held down the market in January 2003; 2009 was the beginning of a new bull market; the Fed saved 2010 with QE2; QE3 likely staved off declines in 2014; global growth fears sparked selling in January 2016; and a partially inverted yield curve and trade tensions fueled Q4 selling in 2018. ( Almanac Investor newsletter subscribers receive full analysis of each reading as well as its potential implications for the full year.) Including the eight flat-year errors (less than +/− 5%) yields a 73.9% accuracy ratio. A full comparison of all monthly barometers for the Dow, S&P and NASDAQ can be seen at www.stocktradersalmanac.com in the January 3, 2019, Alert. Bear markets began or continued when Januarys suffered a loss ( see page 22 ). Full years followed January's direction in 12 of the last 17
presidential election years. See page 18 for more . AS JANUARY GOES, SO GOES THE YEAR
JANUARY BAROMETER IN GRAPHIC FORM SINCE 1950
February is the weak link in “Best Six Months” (pages 50, 52 & 147) RECENT RECORD: S&P up 10, down 5, average change 0.6% last 15 years Second best NASDAQ month in presidential election years average gain 2.5%, up 7 down 5 (page 158), #9 Dow, up 10 down 7 and #9 S&P, up 9, down 8 (pages 153 & 155) Day before Presidents' Day weekend S&P down 17 of 28, 11 straight 1992–2002, day after up 8 of last 9 (see page 100 & 133) Many technicians modify market predictions based on January's market
DOWN JANUARYS: A REMARKABLE RECORD In the first third of the 20th century, there was no correlation between January markets and the year as a whole. Then, in 1972, Yale Hirsch discovered that the 1933 “Lame Duck” Amendment to the Constitution changed the political calendar, and the January Barometer was born—its record has been quite accurate (page 16). Down Januarys are harbingers of trouble ahead in the economic, political, or military arena. Eisenhower's heart attack in 1955 cast doubt on whether he could run in 1956—a flat year. Two other election years with down Januarys were also flat (1984 & 1992). Thirteen bear markets began, and ten continued into second years with poor Januarys. 1968 started down, as we were mired in Vietnam, but Johnson's “bombing halt” changed the climate. Imminent military action in Iraq held January 2003 down before the market triple-bottomed in March. After Baghdad fell, pre-election and recovery forces fueled 2003 into a banner year. 2005 was flat, registering the narrowest Dow trading range on record. 2008 was the worst January on record and preceded the worst bear market since the Great Depression. A negative reading in 2015 and 2016 preceded an official Dow bear market declaration in February 2016. Unfortunately, bull and bear markets do not start conveniently at the beginnings and ends of months or years. Though some years ended higher, every down January since 1950 was followed by a new or continuing bear market, a 10% correction, or a flat year . Down Januarys were followed by substantial declines averaging minus 12.9% , providing excellent buying opportunities later in most years. FROM DOWN JANUARY S&P CLOSES TO LOW NEXT 11 MONTHS
THE TENTH YEAR OF DECADES Tenth years have on average been the worst years of the decade. There were four major wars and the Iran hostage crisis. Sizable declines (or bear markets) occurred in all. During the past nine decades the market ended up on four occasions. Even as an election year, 2020 is still vulnerable to a “Worst Months” decline. See pages 129–130 for further detail .
2020 PRESIDENTIAL ELECTION YEAR PERPECTIVES First Five Months Better When Party Retains White House Since 1901 there have been 29 presidential elections. When the Party in power retained the White House 17 times, the Dow was up 1.5% on average for the first five months, compared to a 4.0% loss the 12 times the Party was ousted. Since 1950, retaining the White House 8 times brought an average gain of 1.9% compared to 0.1% the other nine times. War Can Be a Major Factor in Presidential Races Democrats used to lose the White House on foreign shores (1920 WWI, 1952 Korea, 1968 Vietnam, 1980 Iran crisis). Republicans, on the other hand, lost it here at home (1912 party split, 1932 depression, 1960 economy, 1976 Watergate). Homeland issues dominated elections the past three decades with the Republican loss in 1992 (economy), the Democratic loss in 2000 (scandal), and the Republican loss in 2008 (economy). International trade disagreements, diplomatic tensions and domestic disputes are all factors for 2020. Market Bottoms Two Years After a Presidential Election A takeover of the White House by the opposing party in the past six decades (1960, 1968, 1976, 1980, 1992, 2000, 2008 and 2016) has resulted in a bottom within two years, except 1994, a flat year. When incumbent parties retained power (1964, 1972, 1984, 1988, 1996, 2004, 2012) stocks often bottomed within two years as well, except 1984 (three years, 1987), 2004 (one year, flat 2005) and 2012 (no bottom, QE). If the market eludes the bear in 2020 a bottom is more likely in 2022. Only Six Election Year Declines Greater Than 5% Since 1896 Presidential election years are the second best performing year of the four-year cycle, producing losses of greater than 5% in only 6 of those 30 years. Incumbent parties lost power in 5 of those years (1920, 1932, 1960, 2000 and 2008). Five losses occurred at the end
of the second term. FDR defeated Hoover in 1932 and was re-elected to an unprecedented third term as WWII ravaged Europe. Market Better When Sitting President Runs for Reelection Politics and parties aside, stocks have performed better in election years when a sitting president is running for reelection. Since 1900 the Dow has gained 8.9% on average in election years when incumbents run for reelection versus just 5.1% when it's an open field. When they win, the Dow averages 10.5% compared to 4.3% when they lose. Since 1949, the Dow has averaged 10.1% during incumbent reelection bids versus –1.6% when no sitting president is running. Page 9. August–October Market Performance Presidential Predictor Our good friend and colleague Sam Stovall, Chief Investment Strategist at CFRA, tracks a rather reliable “Presidential Predictor” indicator. When the S&P 500 is up from July 31 to October 31 during presidential election years, the incumbent party retains power 11 of the 13 election years or 85% of the time since 1936. Losses for the S&P 500 over this 3-month span, just before the election, have seen a shift in party control in 7 of the 8 years for an 88% success rate. The three misses were likely due to significant third-party candidates derailing reelections in 1968 (Wallace) and 1980 (Anderson) and Eisenhower's 1956 reelection during a bear market, the Suez Crisis/Sinai War in October–November 1956 and Soviet tanks rolling into Hungary to quell the revolution in October 1956. Market Charts of Presidential Election Years Market behavior the past 21 elections, including candidates and winners. Page 30. How the Government Manipulates the Economy to Stay in Power Money faucets get turned on, if possible, in years divisible by 4. Page 32. Incumbent Party Wins & Losses
Markets tend to be stronger when the Party in power wins. Page 78. Only Two Losses in Last Seven Months of Election Years Regardless of which Party is victorious, the last seven months have seen gains on the S&P in 15 of the 17 presidential election years since 1950. One loss was in 2000 when the election's outcome was delayed for 36 tumultuous days, though the Dow did end higher. Financial crisis and the worst bear market since the Great Depression impacted 2008. Page 80. FEBRUARY 2020
Mid-month strength and late-month weakness are most evident above RECENT RECORD: S&P 13 up, 8 down, average gain 1.7%, second best Rather turbulent in recent years, with wild fluctuations and large gains and losses March has been taking some mean end-of-quarter hits (page 134), down 1469 Dow points March 9–22, 2001 Last three or four days Dow a net loser 19 out of last 30 years NASDAQ hard hit in 2001, down 14.5% after 22.4% drop in February Second worst NASDAQ month during presidential election years average loss 0.9%, up 7, down 5 Third Dow month to gain more than 1000 points in 2016
MARKET CHARTS OF PRESIDENTIAL ELECTION YEARS
HOW THE GOVERNMENT MANIPULATES THE ECONOMY TO STAY IN POWER Bull markets tend to occur in the third and fourth years of presidential terms, while markets tend to decline in the first and second years. The “making of presidents” is accompanied by an unsubtle manipulation of the economy. Incumbent administrations are duty-bound to retain the reins of power. Subsequently, many significant bear markets began in years following presidential elections: 1929, 1937, 1957, 1969, 1973, 1977 and 1981. Our major wars also began in years following elections: Civil War (1861), WWI (1917), WWII (1941) and Vietnam (1965). 9/11, the war on terror and the build-up to the Iraq War caused post-election 2001 and midterm 2002 to be the worst back-to-back years since 1973–1974. Some cold hard facts to prove economic manipulation appeared in a book by Edward R. Tufte, Political Control of the Economy (Princeton University Press). Stimulative fiscal measures designed to increase per capita disposable income providing a sense of well- being to the voting public included: increases in federal budget deficits, government spending and Social Security benefits; interest rate reductions on government loans; and speed-ups of projected funding. Federal Spending: During 1962–1973, the average increase was 29% higher in election years than in non-election years. Social Security: There were nine increases during the 1952–1974 period. Half of the six election-year increases became effective in September eight weeks before Election Day. The average increase was 100% higher in presidential than in midterm election years. Annual adjustments for inflation have been the norm since then. Real Disposable Income: Accelerated in all but one election year between 1947 and 1973 (excluding the Eisenhower years). Only one of the remaining odd-numbered years (1973) showed a marked acceleration. These moves were obviously not coincidences and explain why we tend to have a political (four-year) stock market cycle. Here are more examples of election year “generosity”:
Nixon plans to pump about $1 billion a month more than originally planned into spending programs designed to put money into the pockets of millions of currently unhappy voters . . . Such openhanded spending marks Nixon's conversion from unsuccessful policies of conservatism and gradualism to the activist, pump-priming Keynesian economic theory. Time Magazine , January 31, 1972. EPA Administrator Carol M. Browner today announced President Clinton's proposed fiscal year 2001 budget of $7.3 billion for the United States Environmental Protection Agency, the largest increase in the history of the Clinton/Gore Administration in spending for the EPA. February 7, 2000. Like many of its predecessors, the Bush White House has used the machinery of government to promote the re-election of the president by awarding federal grants to strategically important states. New York Times , May 18, 2004 Even some conservatives grumble that Bush's tax cuts, expanded drug benefits for seniors and increased military spending have spurred a dramatic increase in the federal budget deficit, projected to be $477 billion in fiscal 2004, according to the Congressional Budget Office. TheStreet.com , July 2, 2004. After his historic midterm losses Obama quickly introduced a compromise deal with Congressional Republicans, overcame opposition from both parties, passed the $858 billion 2010 Tax Relief Act and signed it into law on December 17, 2010, just in time for his 2012 reelection campaign that began April 4, 2011. The United States does not have an exclusive on electoral spending manipulations: An executive increases spending to reward or cultivate loyalty to himself as the party or coalition leader. Evidence from South Korea and Taiwan between the 1970s and 2000 supports the theory. This strategy affects spending outcomes in election years. Journal of East Asian Studies , January 2006
In mid-2019 two dozen candidates are vying for the Democratic nomination. By mid-2020 the positive impacts of Trump's Tax Cuts and Jobs Act of 2017 signed into law December 22, 2017 may be wearing thin as the battle to unseat Trump comes to a boil. But you can bet the negotiator-in-chief will do everything in his power to manipulate the economy to stay in power and keep the stock market propped up by Election Day.
THE DECEMBER LOW INDICATOR: A USEFUL PROGNOSTICATING TOOL
When the Dow closes below its December closing low in the first quarter, it is frequently an excellent warning sign. Jeffrey Saut, Market Strategist and Board Member at Capital Wealth Planning, brought this to our attention years ago. The December Low Indicator was originated by Lucien Hooper, a Forbes columnist and Wall Street analyst back in the 1970s. Hooper dismissed the importance of January and January's first week as reliable indicators. He noted that the trend could be random or even manipulated during a holiday- shortened week. Instead, said Hooper, “Pay much more attention to the December low. If that low is violated during the first quarter of the New Year, watch out!” Twenty of the 35 occurrences were followed by gains for the rest of the year—and 18 full-year gains—after the low for the year was reached. For perspective we've included the January Barometer readings for the selected years. Hooper's “Watch Out” warning was absolutely correct, though. All but two of the instances since 1952 experienced further declines, as the Dow fell an additional 10.5% on average when December's low was breached in Q1. Only three significant drops occurred (not shown) when December's low was not breached in Q1 (1974, 1981 and 1987). Both indicators were wrong seven times and nine years ended flat. If the December low is not crossed, turn to our January Barometer for guidance (page 16).
HOW TO TRADE BEST MONTHS SWITCHING STRATEGIES Our Best Months Switching Strategies found on pages 52, 54, 60 and 62 are simple and reliable, with a proven 69-year track record. Thus far we have failed to find a similar trading strategy that even comes close over the past six decades. And to top it off, the strategy has only been improving since we first discovered it in 1986. Exogenous factors and cultural shifts must be considered. “Backward” tests that go back to 1925 or even 1896 and conclude that the pattern does not work are best ignored. They do not take into account these factors. Farming made August the best month from 1900 to 1951. Since 1987 it is the worst month of the year for the Dow and S&P. Panic caused by the financial crisis in 2007–08 caused every asset class aside from U.S. Treasuries to decline substantially. But the bulk of the major decline in equities in the worst months of 2008 was sidestepped using these strategies. Our Best Months Switching Strategy will not make you an instant millionaire as other strategies claim they can do. What it will do is steadily build wealth over time with half the risk (or less) of a “buy and hold” approach. A sampling of tradable funds for the Best and Worst Months appears in the table below. These are just a starting point and only skim the surface of possible trading vehicles currently available to take advantage of these strategies. Your specific situation and risk tolerance will dictate a suitable choice. If you are trading in a tax- advantaged account such as a company-sponsored 401(k) or Individual Retirement Account (IRA), your investment options may be limited to what has been selected by your employer or IRA administrator. But if you are a self-directed trader with a brokerage account, then you likely have unlimited choices (perhaps too many).
Generally speaking, during the Best Months you want to be invested in equities that offer similar exposure to the companies that constitute the Dow, S&P 500, and NASDAQ indices. These would typically be large-cap growth and value stocks as well as technology concerns. Reviewing the holdings of a particular ETF or mutual fund and comparing them to the index members is an excellent way to correlate. During the Worst Months switch into Treasury bonds, money market funds or a bear/short fund. Grizzly Short (GRZZX) and AdvisorShares Ranger Equity Bear (HDGE) are two possible choices. Money market funds will be the safest, but are likely to offer the smallest return, while bear/short funds offer potentially greater returns, but more risk. If the market moves sideways or higher during the Worst Months, a bear/short fund is likely to lose money. Treasuries can offer a combination of fair returns with limited risk. Additional Worst Month possibilities include precious metals and the companies that mine them. SPDR Gold Shares (GLD), VanEck Vectors Gold Miners (GDX) and ETF Securities Physical Swiss Gold (SGOL) are a few well-recognized names
available from the ETF universe. Become an Almanac Investor
Almanac Investor subscribers receive specific buy and sell trade ideas based upon the Best Months Switching Strategies online and via email. Sector Index Seasonalities, found on page 92, are also put
into action throughout the year with corresponding ETF trades. Buy limits, stop losses, and auto-sell price points for the majority of seasonal trades are delivered directly to your inbox. Visit www.stocktradersalmanac.com or see the insert for details and a special offer for new subscribers. MARCH 2020
April is still the best Dow month (average 1.9%) since 1950 (page 50) April 1999 first month ever to gain 1000 Dow points, 856 in 2001, knocked off its high horse in 2002 down 458, 2003 up 488 Up fourteen straight, average gain 2.3% April exhibits strength after tax deadline in recent years Stocks anticipate great first quarter earnings by rising sharply before earnings are reported, rather than after Rarely a dangerous month, recent exceptions are 2002, 2004 and 2005 “Best Six Months” of the year end with April (page 52) Presidential election year Aprils weaker since 1950 (Dow 0.9%, S&P 0.6%, NASDAQ –0.4%) End of April NASDAQ strength (pages 125 & 126)
DOW JONES INDUSTRIALS ONE-YEAR SEASONAL PATTERN CHARTS SINCE 1901
S&P 500 ONE-YEAR SEASONAL PATTERN CHARTS SINCE 1930
NASDAQ, RUSSELL 1000 & 2000 ONE-YEAR SEASONAL PATTERN CHARTS SINCE 1971
“May/June disaster area” between 1965 and 1984 with S&P down 15 out of 20 Mays Between 1985 and 1997 May was the best month with 13 straight gains, gaining 3.3% per year on average, up 13, down 9 since Worst six months of the year begin with May (page 52) A $10,000 investment compounded to $1,068,826 for November– April in 69 years compared to a $1,461 gain for May–October Dow Memorial Day week record: up 12 years in a row (1984–1995), down 15 of the last 24 years Since 1950 presidential election year Mays rank poorly, #11 Dow, #10 S&P and #8 NASDAQ
SUMMER MARKET VOLUME DOLDRUMS DRIVE WORST SIX MONTHS In recent years, Memorial Day weekend has become the unofficial start of summer. Not long afterward trading activity typically begins to slowly decline (barring any external event triggers) toward a later summer low. We refer to this summertime slowdown in trading as the doldrums due to the anemic volume and uninspired trading on Wall Street. The individual trader, if he is looking to sell a stock, is generally met with disinterest from The Street. It becomes difficult to sell a stock at a good price. That is also why many summer rallies tend to be short lived and are quickly followed by a pullback or correction.
Above are plotted the one-year seasonal volume patterns since 1965 for the NYSE and since 1978 for NASDAQ against the annual average daily volume moving average for 2019 as of the close on June 14, 2019. The typical summer lull is highlighted in the shaded box. A prolonged surge in volume during the typically quiet summer months, especially when accompanied by gains, can be an encouraging sign that the bull market will continue. However, should traders lose their conviction and participate in the annual summer exodus from The Street, a market pullback or correction could quickly unfold. MAY 2020
TOP PERFORMING MONTHS: STANDARD & POOR'S 500 and DOW JONES INDUSTRIALS Monthly performance of the S&P and the Dow is ranked since 1950. NASDAQ monthly performance is shown on page 58. April, November and December still hold the top three positions in both the Dow and the S&P. March has reclaimed the fourth spot on the S&P. Disastrous Januarys in 2008, 2009 and 2016 knocked January into fifth. This, in part, led to our discovery in 1986 of the market's most consistent seasonal pattern. You can divide the year into two sections and have practically all the gains in one six-month section and very little in the other. September is the worst month on both lists. (See “Best Six Months” on page 52.) MONTHLY % CHANGES (JANUARY 1950–MAY 2019)
Anticipators, shifts in cultural behavior and faster information flow have altered seasonality in recent years. Here is how the months ranked over the past 15 years (186 months) using total percentage gains on the S&P 500: April 28.3, July 24.5, March 23.7, November 15.8, February 9.9, December 8.0, September 7.2, October 6.4, January –0.1, May –1.6, August –3.9 and June –12.4. January has declined in 10 of the last 21 years. Sizable turnarounds in “bear killing” October were a common occurrence from 1999 to 2007. Recent big Dow losses in the 21-year period were: September 2001 (9/11 attack), off 11.1%; September 2002 (Iraq war drums), off 12.4%; June 2008, off 10.2%; October 2008, off 14.1%; and February 2009, off 11.7% (financial crisis).
“BEST SIX MONTHS”: STILL AN EYE-POPPING STRATEGY Our Best Six Months Switching Strategy consistently delivers. Investing in the Dow Jones Industrial Average between November 1 and April 30 each year and then switching into fixed income for the other six months has produced reliable returns with reduced risk since 1950. The chart on page 147 shows November, December, January, March and April to be the top months since 1950. Add February, and an excellent strategy is born! These six consecutive months gained 23053.95 Dow points in 69 years, while the remaining May-through- October months gained 3324.63 points. The S&P gained 2408.70 points in the same best six months versus 519.06 points in the worst six. Percentage changes are shown along with a compounding $10,000 investment. The November–April $1,068,826 gain overshadows May–October's $1,461 gain. (S&P results are $823,326 to $9,537.) Just three November–April losses were double-digit: April 1970 (Cambodian invasion), 1973 (OPEC oil embargo) and 2008 (financial crisis). Similarly, Iraq muted the Best Six and inflated the Worst Six in 2003. When we discovered this strategy in 1986, November–April outperformed May–October by $88,163 to minus $1,522. Results improved substantially these past 32 years, $980,663 to $2,983. A simple timing indicator nearly triples results (page 54). SIX-MONTH SWITCHING STRATEGY
MACD-TIMING TRIPLES “BEST SIX MONTHS” RESULTS Using the simple MACD (Moving Average Convergence Divergence) indicator developed by our friend Gerald Appel to better time entries and exits into and out of the Best Six Months (page 52) period nearly triples the results. Several years ago, Sy Harding (RIP) enhanced our Best Six Months Switching Strategy with MACD triggers, dubbing it the “best mechanical system ever.” In 2006, we improved it even more, achieving similar results with just four trades every four years (page 60). Our Almanac Investor eNewsletter (see ad insert) implements this system with quite a degree of success. Starting on the first trading day of October, we look to catch the market's first hint of an up-trend after the summer doldrums, and beginning on the first trading day of April, we prepare to exit these seasonal positions as soon as the market falters. In up-trending markets, MACD signals get you in earlier and keep you in longer. But if the market is trending down, entries are delayed until the market turns up, and exit points can come a month earlier. The results are astounding, applying the simple MACD signals. Instead of $10,000 gaining $1,068,826 over the 69 recent years when invested only during the Best Six Months (page 52), the gain nearly tripled to $2,984,360. The $1,461 gain during the Worst Six Months became a loss of $5,862. Impressive results for being invested during only 6.3 months of the year on average! For the rest of the year consider money markets, bonds, puts, bear funds, covered calls, or credit call spreads. Updated signals are emailed to our Almanac Investor eNewsletter subscribers as soon as they are triggered. Visit www.stocktradersalmanac.com , or see the ad insert for details and a special offer for new subscribers. BEST SIX-MONTH SWITCHING STRATEGY+TIMING
The “summer rally” in most years is the weakest rally of all four seasons (page 74) Week after June Triple-Witching Day Dow down 25 of last 29 (page 108) RECENT RECORD: S&P up 12, down 9, average loss 0.4%, ranks tenth Stronger for NASDAQ, average gain 0.8% last 21 years Watch out for end-of-quarter “portfolio pumping” on last day of June, Dow down 17 of last 28, NASDAQ up 7 of last 8 Presidential election year Junes: #2 S&P, #5 Dow, #4 NASDAQ June ends NASDAQ's Best Eight Months
TOP PERFORMING NASDAQ MONTHS NASDAQ stocks continue to run away during three consecutive months, November, December and January, with an average gain of 6.0% despite the slaughter of November 2000, −22.9%, December 2000, −4.9%, December 2002, −9.7%, November 2007, –6.9%, January 2008, −9.9%, November 2008, −10.8%, January 2009, −6.4%, January 2010, −5.4%, January 2016, –7.9%, and December 2018, –9.5%. Solid gains in November and December 2004 offset January 2005's 5.2% Iraq turmoil–fueled drop. You can see the months graphically on page 148. January by itself is impressive, up 2.8% on average. April, May and June also shine, creating our NASDAQ Best Eight Months strategy. What appears as a Death Valley abyss occurs during NASDAQ's leanest months: July, August and September. NASDAQ's Best Eight Months seasonal strategy using MACD timing is displayed on page 60. MONTHLY % CHANGES (JANUARY 1971–MAY 2019)
For comparison, Dow figures are shown. During this period, NASDAQ averaged a 0.97% gain per month, 42.6% more than the Dow's 0.68% per month. Between January 1971 and January 1982, NASDAQ's composite index doubled in 12 years, while the Dow stayed flat. But while NASDAQ plummeted 77.9% from its 2000 highs to the 2002 bottom, the Dow only lost 37.8%. The Great Recession and bear market of 2007–2009 spread its carnage equally across the Dow and NASDAQ. Recent market moves are increasingly more correlated, but NASDAQ still has a modest advantage. JUNE 2020
GET MORE OUT OF NASDAQ'S “BEST EIGHT MONTHS” WITH MACD TIMING NASDAQ's amazing eight-month run from November through June is hard to miss on pages 58 and 148. A $10,000 investment in these eight months since 1971 gained $746,487 versus a loss of $336 during the void that is the four-month period July–October (as of June 25, 2019). Using the same MACD timing indicators on the NASDAQ as is done for the Dow (page 54) has enabled us to capture much of October's improved performance, pumping up NASDAQ's results considerably. Over the 48 years since NASDAQ began, the gain on the same $10,000 more than doubles to $1,996,063 and the loss during the four-month void increases to $6,420. Only four sizable losses occurred during the favorable period, and the bulk of NASDAQ's bear markets were avoided, including the worst of the 2000–2002 bear. Updated signals are emailed to our monthly newsletter subscribers as soon as they are triggered. Visit www.stocktradersalmanac.com , or see the ad insert for details and a special offer for new subscribers. BEST EIGHT MONTHS STRATEGY + TIMING
TRIPLE RETURNS, FEWER TRADES: BEST 6 + 4–YEAR CYCLE We first introduced this strategy to Almanac Investor newsletter subscribers in October 2006. Recurring seasonal stock market patterns and the four-year Presidential Election/ Stock Market Cycle (page 130) have been integral to our research since the first Almanac 52 years ago. Yale Hirsch discovered the Best Six Months in 1986 (page 52), and it has been a cornerstone of our seasonal investment analysis and strategies ever since. Most of the market's gains have occurred during the Best Six Months, and the market generally hits a low point every four years in the first (post-election) or second (midterm) year and exhibits the greatest gains in the third (pre-election) year. This strategy combines the best of these two market phenomena, the Best Six Months and the 4-Year Cycle, timing entries and exits with MACD (pages 54 and 60). We've gone back to 1949 to include the full four-year cycle that began with post-election year 1949. Only four trades every four years are needed to nearly triple the results of the Best Six Months. Buy and sell during the post-election and midterm years and then hold from the midterm MACD seasonal buy signal sometime after October 1 until the post-election MACD seasonal sell signal sometime after April 1, approximately 2.5 years: solid returns, less effort, lower
transaction fees and fewer taxable events. FOUR TRADES EVERY FOUR YEARS
BEST SIX MONTHS+TIMING+4-YEAR CYCLE STRATEGY
July is the best month of the third quarter (page 66) Start of 2nd half brings an inflow of retirement funds First trading day Dow up 25 of last 30 Graph above shows strength in the first half of July Huge gain in July usually provides better buying opportunity over next 4 months Start of NASDAQ's worst four months of the year (page 58) Presidential election Julys are ranked #7 Dow (up 9, down 8), #7 S&P (up 8, down 9), and #10 NASDAQ (up 6, down 6)Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96 Page 97 Page 98 Page 99 Page 100 Page 101 Page 102 Page 103 Page 104 Page 105 Page 106 Page 107 Page 108 Page 109 Page 110 Page 111 Page 112 Page 113 Page 114 Page 115 Page 116 Page 117 Page 118 Page 119 Page 120 Page 121 Page 122 Page 123 Page 124 Page 125 Page 126 Page 127 Page 128 Page 129 Page 130 Page 131 Page 132 Page 133 Page 134 Page 135 Page 136 Page 137 Page 138 Page 139 Page 140 Page 141 Page 142 Page 143 Page 144 Page 145 Page 146 Page 147 Page 148 Page 149 Page 150 Page 151 Page 152 Page 153 Page 154 Page 155 Page 156 Page 157 Page 158 Page 159 Page 160 Page 161 Page 162 Page 163 Page 164 Page 165 Page 166 Page 167 Page 168 Page 169 Page 170 Page 171 Page 172 Page 173 Page 174 Page 175 Page 176 Page 177 Page 178 Page 179 Page 180 Page 181 Page 182 Page 183 Page 184 Page 185 Page 186 Page 187 Page 188 Page 189 Page 190 Page 191 Page 192 Page 193 Page 194 Page 195 Page 196 Page 197 Page 198 Page 199 Page 200
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