Historical Stock Market Risk & Over Time

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Learn Liberty VIDEO of the Week: "Why Does 1% of History Have 99% of the Wealth?"

Today's #LearnLibertyClassic asks: Why does 1% of history have 99% of the wealth?
Posted by Wendy McKeever Lack on Monday, July 6, 2015

How Long Might This Bull Market Last?

The current stock bull market began its 29th month as of 07/09/11, having started when the S&P 500 bottomed at 677 on 03/09/09.

There have been 9 other bull markets since 1950.

The average length of time for these 9 previous bull markets has been 4 ½ years or 54 months.  

Three of the 9 previous bulls lasted less than 3 years.  

Source: BTN Research
    

Why 2011 May Be A Middling Year...

The S&P 500 enjoyed double digit returns in 2009 and 2010.

A 3rd consecutive year of double-digit gains, however, would be an anomaly.

Since World War II, there have been 10 back-to-back double-digit advances.

Only twice (1951 and 1994) did the streak run to a 3rd year, and the average return in the 3rd year was only +1.7%.

Chart of The Day - Average Pre-Election Year - Is 2011 Keeping Historical Pace?

Today's chart illustrates how the stock market has performed during the average pre-election year.

Since 1900, the stock market has tended to perform well during the first seven to eight months of the average pre-election year. For the remainder of the year, pre-election performance has tended to be more flat/choppy. In the end, however, the stock market has tended to outperform during the entirety of the pre-election year.

This pre-election year has followed the path of the average pre-election year rather closely with a rally up until mid-February and a correction into mid-March with the aftermath of the devastating Japanese earthquake and tsunami weighing heavily on the market over the past few days.

Chart & Commentary Courtesy of Chart of the Day

The Case for An Up Stock Market in 2011...

This year (2011) will be the 3rd year of Barack Obama's 4-year presidential term that began in January 2009. 

The S&P 500 stock index has posted a positive total return during the last 17 "presidential 3rd years." 

The last time the S&P 500 was negative during a "presidential 3rd year" was 1939! 

The average annual return of the S&P 500 during a "presidential 3rd year" since 1950 is a gain of +22.0%!


Source: BTN Research


   

Chart of The Day - Average Pre-Election Year - Historical Performance

Today's chart illustrates how the stock market has performed during the average pre-election year. Since 1900, the stock market has tended to outperform during the first 6 to 7 months of the average pre-election year.

For the remainder of the year, pre-election performance has tended to be choppy and slightly subpar. In the end, however, the stock market has tended to outperform during the entirety of the pre-election year.

One theory to support this behavior is that the party in power will make difficult economic decisions in the early years of a presidential cycle and then do everything within its power to stimulate the economy during the latter years in order to increase the odds of re-election.

Chart & Commentary Courtesy of Chart of the Day

Wall Street Panic Attacks - A Historical Perspective & What To Expect

1. Panic attacks similar to last week's have occurred, for whatever reason, a number of times in the past.

2. Here are some of the historical panic attack dates that are similar to the meltdown the occurred on Black Thursday, May 6, 2010:

May 29, 1962, January 8, 1986, September 11, 1986, October 19, 1987, October 13, 1989, March 8, 1996, October 27, 1997, August 31, 1998, February 27, 2007, etc.

3. After the shock day, typically there were 1 to 3 days of additional selling pressure.

4. After an intitial low is put in, there was usually a vicious 2 to 5 day rally.

5. Everytime, after that initial rally failed, the market retested the panic low.

6. The intraday range of the intial shock day usually contained the price action for the next 1 to 3 months. Any probe above or below the shock-day range was beaten back quickly.

7. All of these panic attacks marked fairly major intermediate-term market bottoms.

8. So if history is any guide, expect the market to move sideways for a few months and ultimately break out of the trading range to the upside.

Historically Bullish Indicator Flashes A Buy Signal

A rare stock market BUY signal that was generated a couple of weeks ago by a trend-following indicator with an exceptional long-term record.

Prior to the recent buy signal, there had been only 12 since 1967.

And 2 of those 12 prior BUY signals occurred in the last 12 months alone. In other words, between 1967 and March 2009, this indicator gave just 10 BUY signals -- an average of just 1 every 4.3 years.

Since March 2009, though, they have averaged 1 every 4 months or so.

The indicator in question comes from Ned Davis Research, the quantitative research firm. It generates a buy signal whenever the percentage of common stocks trading above their 50-day moving averages rises above 90%.

Mr. Davis refers to such events as a "Breadth Thrust."

The recent BUY signal, according to this indicator, occurred on April 5. The other BUY signals over the last year occurred on May 4 and September 16 of last year.

How has the stock market performed following past BUY signals?

Quite well, according to Mr. Davis's calculations...

Bottom Line: 

If history is any guide, the current climate is a low-risk, high-reward environment.