Thursday June 21, 2012
by Jim Stack, editor InvesTech Market AnalystWhile the “Sell in May…” philosophy likely contributed to the weakness last month, there is a historical caveat about following this truism all the time – particularly in a Presidential Election year.
Since 1928, over 80% of Presidential Election years have seen gains in the S&P 500 Index between May 1 and Election Day. And only one of the four losing periods exceeded a 10% loss (2008).
We also should re-emphasize that election years are historically stable or profitable for the market – in spite of the political confrontation and mudslinging that leads up to Election Day.
In 23 of the past 28 Presidential Election Years (82% of the time), the stock market in September-November was either at a high for the year, or within 4% of the high.
Thus, the odds are over 3:1 in favor of seeing a yearly high in the 4th quarter instead of a yearly low. We'd also note that in a quirk of volatile fate, 2004 saw both its yearly high and low in the 4th quarter.
Objective discipline is a rare commodity in an emotionally-driven market like this. There are storm clouds overhead that are difficult to gauge or measure – particularly the growing European debt crisis and political showdown ahead.
But historically speaking, the best profit opportunities for investors usually come when the clouds appear darkest. And underlying valuations in this market remain very attractive even in a slow-growth economy.
Learn more about this financial newsletter at Jim Stack's InvesTech Market Analyst.
