The U.S. stock markets closed 2007 on a sour note, falling not only on New Year's Eve, but ending the fourth quarter with a negative return. On the positive side of the ledger, though, the markets managed to preserve positive returns on the year.
Here's a table showing the data for the three major equity indexes, showing the year's closing value (Close), the Fourth Quarter net change in points (4QNet), percentage change (4QNet%), and the year over year percent return (Year%):
Close4QNet4QNet% Year%
DJIA13264.8-630.8 -4.5 6.4
SPX1468.4-58.4 -3.8 3.5
NASDAQ2652.3-49.2 -1.8 9.8
So, have we seen this sort of performance before?
Q: How have the markets each performed in the past when they have experienced a decline during the fourth quarter, but finished the year with a positive return?
A:
Dow - The Dow has seen this occur sixteen times in the past, starting in 1897. As you can see in the table below, the Dow has gone on to rally in 12 of the 15 historical cases (80%) by the year's end by an average of 16.7%. The three declines, when they came, were pretty bad - down an average of 20.4% by year's end, including a 32.9% wipeout in 1919. The overall return of all cases is 9.3%.
S&P 500 Index - The SPX has seen many fewer occurrences of this event with only seven. It has rallied in six cases by year's end by an average of 12.2%. The worst performance was 1.4% in 1983 - which was the year of the worst first-day performance, where the Dow fell -1.9% on the first trading day of the year.
Nasdaq Composite - Seven occurrences for this index too, but much less consistent returns over the following year. The overall average return is a positive 8.8%. The three positive years averaged 29.0% versus the three negative years which averaged -11.4%.
If you would like to see more details of this historical edge, go to www.markethistory.com
Gibbons Burke is editor of MarketHistory.com.
