Fasten your seat belts and get your hard hats, 2015 is here. Last year the SPX was coming off of a 29% year, it wasn’t likely to happen again. It didn’t. It was up over 11% which is still respectable. The Dow was up 7.5% for the year. Since I am a stock market historian we have to mention the decennial pattern for years ending in the numeral ‘5’. According to the stockcharts.com website the number ‘5’ year has been an up year every time going back to 1885 (see chart).
They also state the low price for the year has been made in the first quarter every time except for 1965. One of the reasons for this condition is we are either in the first or third year of a presidential cycle.
So should I mute my bearishness? I will tell you I am a big believer in stock market cycles and seasonal work. But let me show you two of the most interesting years in this cycle.
First of all, here’s the 1965 weekly chart (above), which had an 11.7% correction. Hey, that’s huge considering this is what the Elliotticians called grand super cycle wave 3. Even if you aren’t an Elliottician the period from 1949-66 is considered our greatest era of prosperity. While the statistics are true, the long-term top just missed 1965 and topped in February 1966. Just for your curiosity, in case you were wondering the big red bar on the left is Nov. 22, 1963. The next what could be considered an outlier is 1975. As luck would have it, the technical bottom for the entire decade hit in December 1974. It had nowhere to go but up. So I’m showing one chart that just missed the top and another that just missed a bottom.
In some of the other cases we had a correction for most of 1953 which meant the big bull years were ‘54 and ‘55. And 1956 was a down year. 1945 was a good year coming out of somewhat flat ‘43 and ‘44. Of course, the war was won in 1945. And 1935 came out of a flat ’34; 1925 was the follow through to the lift-off to the great bull of the roaring 1920’s, which really took off for good in 1924. And 1985 was a great year largely because ‘84 was a big pullback year. Even 1994 was a correction type year and ‘95 was the year the Internet bubble started taking root.
Do you think politics had anything to do with it? It was the third year of a presidential cycle and you’ll recall that in 1994 the GOP took control of Congress with Newt Gingrich’s contract with America. Ever the shrewd politician, Bill Clinton took the hint, set himself on a new course to work with the new Congress as much as possible and the country started to enjoy a great period of prosperity.
In 2005 the Dow opened at 10,783 and closed at 10,717, which meant it was mostly flat but from the high in March to the low in April they had an 8.9% drop.