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An article in yesterday’s New York Post warned readers that they should be cautious about the future path of the stock market. Unlike the typical bearish arguments however (the falling dollar, rising deficit, geopolitical turmoil, slowing earnings growth, etc.), this article had a unique angle. The writer claims that investors should be wary because tomorrow morning, Mayor Bloomberg and Governor Spitzer will break ground on the long planned and long delayed Second Avenue Subway, and notes that “Previous ‘good news’ for the long postponed East Side line has always heralded a Wall Street downturn."

In order to test this argument, we did a news search dating back to 1925 of all times where either funds were approved or construction began on the Second Avenue line, and as the chart shows, more often than not, the periods coincided with short (or in some cases long) term peaks in the market.

While this is hardly a reason to go out and sell stocks, when you think about it, it makes some sense. If New York City is doing so good that it has the money to spend on a new subway line, then Wall Street must also be doing great (since NYC derives so much in revenue from Wall Street profits).

click to enlarge
2nd avenue subway

Source: Riding the Second Avenue Subway: Has the Market Peaked?