The election season is nearing its end and the candidates are making their last ditch efforts to sway voters. Which means, among other things, that it’s time for another look at how the presidential cycle influences stock prices. The Stock Trader’s Almanac (Wiley, 2013), edited by Jeffrey A. Hirsch and Yale Hirsch and now in its 46th annual edition, is the premiere source of this information.
A spiral-bound hardcover, the almanac includes a calendar section, a directory of trading patterns and databank, and a strategy planning and record section. The calendar section has on facing pages historical data on market performance (verso) and a week’s worth of calendar entries (recto). January’s verso pages, for example, give the month’s vital statistics, January’s first five days as an early warning system, the January barometer (which has had only seven significant errors in 62 years), and the January barometer in graphic form. Each trading day’s entry on the recto pages includes the probability, based on a 21-year lookback period, that the Dow, S&P, and Nasdaq will rise. Particularly favorable days (based on the performance of the S&P) are flagged with a bull icon, while particularly unfavorable trading days get a bear icon. A witch icon appears on options expiration days. At the bottom of each entry is an apt quotation. There’s about a five-square-inch space on each page in which to write.
So what, based on history, do we have to look forward to post-election? For starters, the post-election year is the worst performing year of the four-year presidential cycle. The average annual gain in the DJIA for the four-year cycle beginning in 1833 was: post-election year 2.0%, mid-term year 4.2%, pre-election year 10.4%, and election year 5.8%. The total percentage gains were 86.1%, 187.0%, 469.5%, and 254.5%. Of the 21 post-presidential election years since 1929, the Dow closed up 11 times: 1933, 1945, 1949, 1961, 1965, 1985, 1989, 1993, 1997, 2005, and 2009. Jeffrey Hirsch doubts that 2013 will be number 12. “After the year-end rally and positive 2012, we are concerned that the next major bear market will occur in the 2013-2014 period,” he wrote.
So far this year, Hirsch’s favorite defensive play has been AdvisorShares Active Bear ETF (HDGE), managed by John Del Vecchio and Brad Lamensdorf. Del Vecchio is also the co-author of the almanac’s choice for best investment book of the year: What’s Behind the Numbers? (With any luck, I should be getting my review copy of this book soon.)
Traders and active investors who thrive on historical data will once again have a heyday with this almanac. Take, for instance, the notion of the super-8 days. “The market currently exhibits greater bullish bias from the last three trading days of the previous month through the first two days of the current month, and now shows significant bullishness during the middle three trading days, 9 to 11, due to 401(k) cash inflows” (p. 88). In 2011, the super-8 day returns totaled 13.93%. The rest of the month (13 days) saw a total loss of 5.68%.
The promotional blurb describes the Stock Trader’s Almanac as “the ultimate desktop market data bank.” I never consider anything ultimate, but this almanac comes pretty darned close. And that’s praise from someone who tends not to pay very much attention to seasonals.