Got a Feeling 2015 is Going to be a Good Year
By Jeffrey A. Hirsch
It’s the time of year to pause and reflect and give thanks for the things we have and hold dear. As I said to the kids at peewee wrestling practice last night, I am thankful for wrestling. Wrestling teaches discipline, hard work, body and mind awareness, builds strength and confidence, while promoting individual achievement as well as teamwork. Olympic wrestling great Dan Gable (gold medal 1972 Munich) said, “Once you’ve wrestled everything else in life is easy.”
In addition to being thankful for family, friends, health and the Stock Trader’s Almanac, we should all give thanks for this bull market and the fact that it appears to still have some legs. A sizeable number of analysts and pundits are skeptical of the market’s prospects for further gains over the next 12-13 months. However, readings from several disciplines indicate that the market is most likely to continue higher over the next six months at least and through next year. After that is another story.
Historical cycles suggest good things for the stock market in 2015. It’s a pre-presidential election year, which is by far and away the best year of the 4-year cycle. Since their last loss in 1939, the third year of the cycle is up 16.0% on average for the Dow and 16.3% for the S&P 500. Since 1971 NASDAQ averages a whopping 30.9% in the third year of the 4-year cycle.
The fifth year of the decade is also the best year of the decennial pattern by a long shot with only one loss in the past thirteen decades. Years ending in “5” average 28.3% for the Dow and its predecessors since 1885, with S&P 500 averaging 25.3% since 1935 and NASDAQ averaging 25.6% since 1975.
We are now firmly in the sweet spot of the 4-year cycle (midterm Q4 & pre-election Q1-2). These best three quarters of the 4-year cycle have produce averaged gains of 21.5% for the Dow and 22.2% for the S&P 500 since 1950 and 34.1% for NASDAQ since 1974.
Since 1901 there have been six previous presidents that have served a sixth and seventh year. Except for 1919 during the post-WWI-armistice rally, seventh years have been a little weaker than other pre-election years, likely due to lower excitement with a president the country has become apathetic towards.
As mentioned last Friday on the blog, three consecutive years of double-digit gains are bullish for 2015. The S&P 500 is up nearly 12% at this writing so far this year. If these gains hold or increase, it would be just the fourth time in 84 years of S&P 500 data in which there have been three or more consecutive years of double-digit gains. In all past occurrences the year after the third year of double-digit gains was also up double-digits for an average gain of 23.1%.