Stock Market Bottoms End Of 2017: An Update

| About: SPDR Dow (DIA)

Summary

We wanted to add a chart, per requests from readers.

We've placed peaks and troughs of 50-year-olds on the Dow Jones chart.

We said in our last report that 50-year-olds are a key economic driver and have shown important S&P correlation.

We wanted to add an extra chart to see our birth chart progression on top of the Dow Jones (NYSEARCA:DIA) chart itself.

We said in Stock Market Bottoms End of 2017 that we see major birth cycles, plus 50 years, corresponding to major market moves.

We called for a market low at the end of 2017.

When 50-year-olds are growing in the population, earning and spending are strong. When they decline that strong component of the economy is in decline. We are currently in a period of decline.

Here's the chart we showed in the last report.

Click to enlarge

The above chart shows what year corresponds to 50 years after peaks and troughs in the birth cycle.

Here's the Dow Jones performance during those times.

1) Peak Trough
Peak Trough Dec 31 Jan 01 Yrs Total Ea Yr
1971 1983 890.2 1027 12 15.4% 1.3%
1993 1995 3794 3838 3 1.2% 0.4%
1997 1998 6442 7965 2 23.6% 11.8%
Average 2.4%
2) Trough Peak
Trough Peak Dec 31 Jan 01 Total Ea Yr
1983 1993 1258 3794 9 201.6% 22.4%
1995 1997 5117 7908 2 54.5% 27.3%
2000 2007 10786 12474 6 15.6% 2.6%
Average 16%
3)
2011 Today 12217 17148 5 40.4% 8.1%
Real 2017 ??
Click to enlarge
Click to enlarge

1) When 50-year-olds were on the decline as a percent of the population the market was up 2.4% per year on average.

2) When 50-year-olds were on the rise (trough to peak) the market was up 16% per year on average.

3) So far, in this down cycle the market is up 8.1% per year. We think this is led by Fed liquidity.

Here are the birth peaks and troughs on the Dow Jones chart itself (which is what we wanted to add to this report). (Chart from macrotrends.net with Elazar's year overlay.)

Click to enlarge

Here you can see the birth-plus-50-years peaks and troughs on the Dow chart. Birth peaks are marked above the chart and troughs are marked below the chart.

Peak to trough '71-'83 the market dropped as we'd expect.

Trough to peak '83 to '93 the market went up (after a spill) as we'd expect.

Peak to trough '93 to '95 the market went up a little against what we'd expect.

Trough to peak '95 to '97 the market went up a lot as we'd expect.

'97 Peak to an extended trough '98-'00 the market went up, against what we'd expect.

From trough to peak '00 to '07 the market went up as we'd expect.

From '07-'11 when 50-year-olds went flat year-over-year the market dropped big and came back, but was down. This is as we'd expect.

We are now in the period from '11 to '18 peak to trough. It would imply there is downside. So far it is up which is against what we'd expect.

Conclusion

We'd expect stock market downside and/or a market low at the end of 2017 if demographics end up taking hold. We are in a down-cycle of the all-important 50 year old demographic. They are peak strong earners and spenders. They also haven't exited the job market yet.

When they are in decline, like they are today, that is an economic drag. Those periods of drags and growth have had material impacts on the stock market itself. This leads us to our bearish conclusion.

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