Wall Street History

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Wall Street History

10/04/2002

Updating the Facts

I thought we’d take a look at some seasonal indicators that have
been in the news recently. In doing so, I may dispel one theory,
while supporting another.

--As many of you are aware, back in 1986 Yale Hirsch
discovered one of the most powerful principles of investing, that
being that if you invested only during the period of November 1
through April 30, you had far superior performance than if you
were investing from May 1 through October 31 each year.

I last addressed the topic in this space April 26 of this year, but
following a Barron’s article from the September 16 issue which
received a lot of play, we can update my own findings (that
back in April were not relayed to the public except in
StocksandNews.com). Specifically, since 1950, if you invested
$10,000 in the Dow Jones Industrials for the November-April
period and got out April 30, repeating this move every year
thereafter, that $10,000 would have grown to $467,000. But if
you invested only from May through October, you’d do no better
than break even. [A small loss, actually, of about $100.]

Pretty powerful stuff. Of course the real question should now be,
well, what has this strategy done for anybody lately? To give you
a sense, following are the key data points for the S&P 500 going
back to the spring of 1997, so we get a look at the last years of
the bubble (including the rough stretches due to the Asian /
Russian crises, as well as Long-Term Capital Management) and
the ensuing bear market.

S&P 500

4/30/97: 801.24
10/31/97: 914.62 [+14.1% 4/30-10/31]
4/30/98: 1111.75 [+21.6% 10/31-4/30]
10/31/98: 1098.67 [-1.2%]
4/30/99: 1335.18 [+21.5%]
10/31/99: 1366.93 [+2.4%]
4/30/00: 1452.43 [+6.3% all-time high of 1527.46 hit 3/24/00]
10/31/00: 1429.40 [-1.6%]
4/30/01: 1249.46 [-12.6%]
10/31/01: 1059.78 [-15.2%]
4/30/02: 1076.92 [+1.6%]
10/2/02: 827.91 [-23.1% 4/30-10/2]

Those are the facts; I’ll let you decide what they mean. Of
course there are so many geopolitical factors that come into play
these days that to adopt any strategy based strictly on past
performance is reckless.

--After the drubbing of the third quarter, what does a look at the
past few years reveal as far as the fourth quarter is concerned?

Again, following are figures for the S&P 500. The first number
is the 9/30 close, the second 12/31, with the resulting percentage
change for the period.

1997: 947.28-970.43 +2.4%
1998: 1017.01-1229.23 +20.9%
1999: 1282.71-1469.25 +14.5%
2000: 1436.51-1320.28 -8.1%
2001: 1040.94-1148.08 +10.3%
2002: 815.28-?????

---What about the Friday/Monday phenomenon? Since the week
ending 9/21/01, it’s been popular to say that equity traders didn’t
want to hold positions over the weekend, in the event something
of a terrorist nature occurred between the close on Friday and
Monday morning. There is also the theory that Friday’s market
movement influences Monday’s action. Well, let me share some
data, after perusing my personal records (painstakingly kept on
scrap paper).

For the 54 such Friday/Monday periods ending this past Monday,
9/30, there have been 28 ‘up’ Fridays, as measured by the S&P
500, and 26 ‘down’ Fridays.

For the same period, there have been 20 ‘up’ Mondays and 34
‘down’ ones.

Breaking it down further:

Following an ‘up’ Friday, there have been 11 up Mondays and
17 down ones.

Following a ‘down’ Friday, there have been 9 up Mondays and
17 down ones.

What does this all prove? Damned if I know, but someone had
to look into it with all the chatter we constantly hear come
week’s end.

---Finally, the aforementioned Barron’s article (written by
Sandra Ward), discussed the powerful market performance
between the market ‘low’ in a mid-term election year and the
‘high’ during the following pre-presidential election year. In a
recent “Week in Review” column, I said this was absurd, despite
the huge past gains, because no one can pick both the bottom and
the top, thus it’s flat out unrealistic. What is a more authentic
look at the past as possible prologue is a straightforward
examination of the performance of the equity market during the
full pre-election year. Using the Ibbotson Associates Yearbook
as my guide, we glean the following and it is powerful.

S&P 500

1999: +21.0%
1995: +37.4%
1991: +30.6%
1987: +5.2%
1983: +22.5%
1979: +18.4%
1975: +37.2%
1971: +14.3%
1967: +24.0%
1963: +22.8%
1959: +12.0%
1955: +31.6%
1951: +24.0%
1947: +5.7%
1943: +25.9%
1939: (-0.4%)
1935: +47.7%
1931: (-43.3%)
1927: +37.5%

Negative returns only in 1931 and 1939. Of course when it
comes to 2003, we not only have the uncertainties of the war on
terrorism and the coming war with Iraq, there are also issues of
globalization and the world economy that simply weren’t as big a
factor until very recent history. Nonetheless, for those of you
who say I’m too pessimistic, hey, I just presented an incredibly
bullish case for investing in 2003 at least by the numbers.

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We return October 11.

Brian Trumbore

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