What impact will a presidential election, Jupiter and Saturn aligning, and Santa Claus have on your portfolio? That’s coming up next!
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So today we’re going to talk about cycles and patterns. We’re going to talk about how we’re able to predict things like Jupiter and Saturn aligning and how we’re able to predict things like the weather or lunar phases or things like that. And it really all has to do with cycles and patterns, and things that have been documented in the past that help us have some insight into what may happen in the future.
Just like we have the Farmers Almanac that’s been around since the early 1800s, there’s a publication called the Stock Traders Almanac that began publication in the late 1960s by Yale Hirsch, and today is being run by his son Jeffrey Hirsch. So the stock traders Almanac gives some insight into some cycles and patterns that happen in the stock market. Of course, just like the weather these things aren’t guaranteed. But they provide some insight into what may happen in the future based on what’s happening right now.
So for example, one of the patterns that they’ve noticed is what they call the Santa Claus rally. Is what happens during the last five trading days of one year and the first two trading days, in other words seven trading days the last five and the first two of the two years that we’re talking about, tend to give some insight into what the market might do the following year? So if Santa Claus shows up and those seven days are positive, generally speaking we will have a positive year the next year.
Now of course this is more of a correlated theory, it’s not causation. It’s not like one causes the other. There’s more of a correlation, kind of like when my wife and I discuss cleaning out the garage. We know how that conversations gonna go. It’s not 100% guaranteed, but we know it’s generally not going to go well. Yt’s kind of the same thing with the Santa Claus rally. It gives some insight into what the market may do the following year. So it’s something to keep an eye on, something to watch and certainly it’s something you’re probably going to hear about so I thought it’d be interesting to at least address in today’s video.
Another thing that they talk about in the sock traders Almanac that is interesting is the presidential election cycle. As we know president is elected to serve four years, and there’s a tendency in the first couple of years that the market doesn’t do as well as it does in the second two years. Particularly that first year the market tends to be negative, or at least tends to be volatile. As opposed to the second or third year. The third year, by the way, tends to be the strongest of the four year cycle. And this has nothing to do whether it’s a democratic administration or a republic administration. It’s just simply a cycle.
With most patterns we like to identify the pattern as human beings. We document the pattern. Then we love to figure out why is the pattern occurring. There has to be a reason for this. And perhaps there’s some logic that we could put in this particular cycle theory with presidential cycles because really the first year a president comes into office generally they’re putting together their cabinet, they’re trying to get their footing with regard to what policies they are going to address, what initiatives they’re going to put in place, and really they could pretty much spend the first year blaming the last administration and really no incentive to make some major changes that first year. But generally by the second and third year in particular, not only have they made changes and begun their initiatives, but by the third year they’re really interested in getting reelected, because as we know the way to stay in power in Washington is by staying in office. So by the third year they’re going to do everything they can to bolster the economy, to get everybody happy so that they could get reelected and stay in power.
And generally the fourth year is pretty reasonably good, although fourth years tend to have some volatility because it’s an election year, and the markets tend to get volatile around election year.
So, once again, are either one of these ideas or theories or concepts something you necessarily change your investment behavior about? Probably not. It’s not something we recommend. It’s not something I’m recommending. But certainly the Santa Claus rally is something at least interesting to keep an eye on. And certainly the presidential election cycle theory is something to keep an eye on. And at least keep it in the background. As you’re thinking about what your portfolio is going to do in the coming days and months.
Hopefully, you found this useful. Hopefully, this was good information. If you did, like I said earlier, please like it, share it, and subscribe. And by all means, send in your questions because I want to make sure that I’m addressing what you’re interested in, and getting to the point of what you’re wanting to hear about when it comes to financial planning and financial wellness. So thank you very much for listening.