January 13th Weekly Market Update
The beginning of the year is often full of talk about what indicators to watch as to how the year may unfold: the first five days indicator, the January effect, the Super Bowl indicator, even the Chinese lunar New Year cycle, among many others. Many of these indicators claim to tell us either the outcome for the year or the pattern stocks may take for at least part of it. While most of these are little more than folklore and are easily discredited upon analysis, there is one that has stood the test of time, and we call it: the Year-Two Curse.
Year two of the presidential cycle has typically been a volatile one for investors. The start of the second quarter to the end of the third quarter of year two has consistently marked the biggest peak-to-trough decline of any year of the four-year presidential term. The pattern of the stock market last year, year one of the current presidential term, generally tracked the typical year-one pattern.
It is not just this cycle that may be shaping up to track the year-two curse. This pattern has been enduring. In fact, nine of the 13 presidential terms since 1960 have seen losses during the “cursed” second and third quarters of year two. That 70% likelihood of losses during the period of the year-two curse is double the 35% frequency the market has been down over any two quarters since 1960.
For the full article: The Year-Two Curse