5th Year Has Always Been A Banner Year
Dimitri Speck
Typically, the US stock market has done well in years ending in '5' (like 1975, 1985 or 1995). The stock market seems to follow a 10-year cycle. The chart above depicts the average 10-year course of the Dow Jones over approx. 100 years (i.e. the yellow part shows the average course of the years ending in '5').
The years ending in '5' have done extremely well in the 20th century. They produced an average gain of 34.61 %. This is the half of the entire average decennial gain! There was no loosing year.
The following chart shows the performance of all years ending in '5', not only for the 20th century, but also for the 19th century. It should be observed that there was no such phenomenon during the first eight decades in the 19th century. However, we may say that this is long ago.
Is there a reason behind the strong 5's? One possible explanation is that there are stock market cycles and that investors are somehow guided by the knowledge of the decade (like the feeling of panic before the turn to the year 2000 or like New Year's pledges). If there is no cause, the phenomenon is pure coincidence. Thus it is always necessary to take steps to minimize losses (e.g. through stopp loss).
Data sources:
Dow Jones Company
Schwert, William: Indexes of United States Stock Prices from 1802 to 1987, Journal of Business, 63 (July 1990) p. 399-426
Notice: Our Hot Tips are no trading recommandations. In fact, they are a real time test of seasonal patterns. Trading with seasonality requires additional means to reduce losses, for example diversifaction, the implemetantion of further indicators, or stop losses. You can find an introduction into seasonal trading under trading strategies. Please take also notice of the results of our previous tips and of our disclaimer.
Dimitri Speck
www.seasonal-charts.com
December 15, 2004
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