The simplest and best market timing strategy is to: Buy in November
and Sell in May. The Almanac looked at 50 years worth of market
history on a month by month basis and showed that if an investor put
$10,000 into the S&P during only the November-April period his
compound investment would have grown to over $314,000. However, a
similar investment over the May-October period would grow to only
$11,500. The numbers for the Dow are $415,000 and $1,700, respectively.
However, please note: When we restrict the analysis to periods during
the favorable November-April span when trend uniformity was also
favorable, the annualized return for the S&P 500 averages
27.8%. But during November-April periods when trend uniformity was
unfavorable, the average annualized return whittles down to just
0.2%. If we further restrict those seasonally favorable periods to
points when both valuations and trend uniformity were unfavorable
(as they are now in November, 2002), the S&P 500 has averaged
an annualized loss of -6.6%.
In other words, historical returns have displayed a seasonal pattern
favoring the November-April period. But the influence of seasonality
never reverses the implications of the prevailing Market Climate.
It is not favorable seasonality that we wait for, it is a favorable
Market Climate.
Four-Year Presidential Cycle. Since 1914, from the low in
the second year of every Administration, the market has staged a significant
rally to its high in the following year. The phenomenon has taken
place no matter which party was in power, in times of war and peace,
boom times and bust, high interest rates or low. The average gain
of the Dow was 50%. I won’t go into the theory of why the pattern
has been so consistent, except to say that as the next election approaches,
Congress and the Administration seem to pull out all the stops to
make sure the economy is booming again by election time. This is the
second year (2002) of the Bush Administration.
