appears that 1997 will be
an up year for the stock
market, but it will likely
fall short of the boomers
we experienced in 1995 and
1996.
This observation is based
upon a number of factors.
First of all, it’s a simple
statistical phenomenon
that large gains are followed
by smaller gains and viceversa.
Since the 1995 and 1996
gains are large by most
standards, the 1997- 1998
gains are likely to be
far less.
Another piece of evidence
supporting this view is
the observation made by
Mr. Dick A. Stoken, in
his book "Strategic Investment
Timing." He states that,
"The really juicy part
of the election cycle
is the fifteen-month period
beginning in early October,
two years before the election,
and lasting until early
January of the election
year." In other words,
the juicy part of this
election cycle started
early in October 1994
and ended early in January
1996.
Mr. Stoken justifies this
claim by noting that from
1934 through 1982, the market
gained an average of 25%
during this fifteen month
period compared to only
1% for the other 33 months
of an administration’s term
in office. Since Mr. Stoken’s
book was published in 1984,
I performed the same calculations
for 1986, 1990, and 1994.
The averages were as follows:
| THE
ELECTION CYCLE |
| Election
Year |
Prime
15 Months
%Gain/(Loss) |
Other
33 Months
Year
%Gain/(Loss)
|
| 1982 |
38.00% |
44.50% |
| 1986 |
07.30% |
26.20% |
| 1990 |
24.50% |
26.70% |
| 1994 |
33.10% |
N/A |
|
|
 We
see here that the presidential
election cycles of 1982,
1986, and 1990 contradict
|
|
Mr. Stoken’s claim that
the "Prime 15 months" outperform
the "other 33 months." The
last time this happened
was in the period from 1942
through 1950. Subsequently,
(from 1954 through 1978),
the "Prime 15 Months" of
The Presidential Cycle far
outgained the "Other 33
Months." Is this about to
happen again? History says
it is.
While it’s fun studying
historical phenomenon such
as The Presidential Cycle,
one would be better served
by staying with fundamentals.
Stock prices rise when inflation
and interest rates go down
and earnings go up. This
is exactly what happened
in 1995 and 1996, but the
trends are likely to weaken
in 1997 and 1998. Inflation
will not go down much further,
so interest rates will have
a bias to rise. Earnings
growth is still on the rise,
but the rate of earnings
growth is slowing.
This scenario says that
the stock market will be
OK in 1997 and questionable
in 1998. Obviously, we have
seen the best of The Presidential
Cycle. According to Mr.
Stoken, the next big up-move
in the market will begin
in October 1998. Mark this
date on your calendar. |
