Broken Seasonals Suggest a Bear Market

I couldn’t remember the last time we had such a terrible ending to a year, so I calculated the November/December S&P 500 returns since 1950, and here is what I found:

So, just going by the averages, it isn’t surprising that investors were expecting a good end to the year (despite the fact that September/October was uncharacteristically strong). After all, 3 out of 4 times over the past 50+ years, that has been the case with an average return over the two months in excess of 3% and double-digit returns almost 10% of the time. Well, at -6.7% through 12/17, 2007 looks to be one of the worst years over that time frame:

What is interesting about those years is that they were all occurred at the beginning or during a bear market, though not all bear markets have had such terrible year-ends. The panel below, with the S&P 500 plotted since 1950, highlights the years mentioned above:

The 1969 weak year-end occurred in the middle of a bear market, as did 1973's. 1974 marked the end of the worst bear market since the Depression, while 2000 represented the beginning of one that proved to be slightly worse. While there are so many fundamental and technical indicators suggesting that a new bear market is upon us, I believe that the weak market action over the past 47 days is yet another warning of a tough year ahead.

Disclosure: None

Comments

[Gammontown:]

very interesting stats
1974 becomes the most important point
Nixon price controls end, off the Gold Standard
Regulation Q change allowed banks to borrow in the Euro Market
End of War = long period of inflation buildup with a spike at the end of the decade in all prices. The need for Paul Volker and 20% interest rates

2007 Dec 18 09:01 AM

[Gammontown:]

plus one other fact I.D. Herstatt collapsed and US banks had to throw a guarantee behind their Europeaan subsidiaries "Conduits" maybe the bell is ringing again

2007 Dec 18 09:08 AM

[flow5:]

Fed gave up the real bills doctrine at xmas

2007 Dec 18 03:22 PM

[Gammontown:]

The Boiler Room

200 of the 600 accounted for who else please

www.bloomberg.com/apps...

2007 Dec 19 09:13 AM