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What Does The Big Drop On The Last Day Of The Year Mean?
Submitted by Dana Lyons via JLFMI and My401kPro.,
For just the 5th time since 1950, the S&P 500 dropped at least 1% on the last trading day of the year. We looked at the previous 4 incidents to see if there was any pattern to the market performance going forward. We will emphasize the following caveats regarding the study.
- A mere 4 precedents is not enough to produce any statistically significant conclusions for us.
- Year-end dynamics can produce market action that is more related to re-balancing, re-positioning, tax considerations, etc than it is to the organic trend at hand.
- Due to new year dynamics, January is a goofy month and often produces counter-trend action.
We still took a look to see if there were any interesting results. There were.
The 4 dates that saw 1% drops in the S&P 500 were 12/31/1996 (-1.7%), 12/29/2000 (-1.0%), 12/31/2001 (-1.1%) and 12/31/2009 (-1.0%). Although we show the subsequent returns out to 1 year, we thought it was a stretch to extrapolate anything further out than 1 month from one day’s market action (even that may be a stretch). So we focused on returns out to a month, as shown in the chart. Here are some interesting tidbits that we found:
- 2 Januarys showed gains, 1997 (+6.1%) and 2001 (+3.5%) and 2 Januarys showed losses, 2002 (-1.6%) and 2010 (-3.7%)
- The 2 Januarys that showed gains, 1997 and 2001 were each down the 1st day of the month, by -0.5% and -2.8% respectively. Each time, that was the low point for the month.
- The 2 Januarys that showed losses, 2002 and 2010 were each up the 1st day of the month, by +0.6% and +1.6% respectively. January 2002’s max gain came on day 3 (+2.1%) and January 2010’s max gain came on day 12 (+3.2%).
- January 1997’s day 1 loss of -0.5% marked the low point for the year.
- January 2002’s day 3 max gain of +2.1% marked the high point for the year.
- January 2001’s max gain of +4.0% on day 21 marked the high point for the year.
- All 4 Januarys were up after 2 and 3 days.
- The median January drawdown among the occurrences was -3.3%, double the historical median for all months.
- 3 of the 4 occurrences (1997 was up) saw 6-month losses, with a median loss of -7.3%.
One final note is that when making historical comparisons, when possible we like to make our best attempts at doing so with periods at similar points in the market cycle. The 4 precedents do not really match up with where we are currently. 1996 had similarities in that it was coming off a very strong 2-year period. However, it was also in the meat of a secular bull market. 2000 marked the top of the secular bull, however the market had been weak for the last 4 months of the year, at least, whereas we are just off the highs now. 2001 only bore resemblance in its strong 3+ months ending the year. 2009 was a strong year, like 2014; however, it was coming off of a cyclical low.
Our takeaway is that there are some pretty interesting statistics following the 4 previous times the S&P 500 dropped at least 1% on the final day of the year. Generally, returns were above average in the short-term and poor in the longer-term.
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Of course, all this is bunk in the new normal... as we explained here.
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Not a f'n thing...
Maybe start yelling at Yellen?
yellen has not even budged yet. All these people saying YELLEN increasing interest rates will crash the market. Can put that to bed.
I think CRUDE chart are hinting more than that chart here => http://bit.ly/1B4K0wkis very interesting.
plus the fact that you can actually having rising interest rates, and rising markets We are actually still in a BULL MARKET. They do not die down in a few days, weeks, or months. So 2015 will be interesting, and probably more painful for bears hoping and wishing for a crash this year.
Agree, I think we’ll see one more all time high before the big drop.
Once the articles about "Saudis refuse to cut production" stop, the drop will stop.
Give it about 3 mlre months before the markets start to rise again.
2 years were up and 2 years were down. That is an average of 0%? What a garbage article.
Vampyroteuthis ...
No, no. What it's saying is that the market could go up...or down...
DavidC
We rigg'd some folks
Is there any way to get you to stop saying this kind of thing? How much bitcoin? Name your price.
We annoyed some folks with our "We XXXX-ed some folks."
I have had it with these motherfucking XXXX on a plane.
Can this be the end of these catch-phrases? What are we? Roman Consuls?
Did not know thought police were hanging here? How is this any different than btfd, btfah, and so on. It is a general phase for a fucked up situation.
I guess I riled so folks with this post....
You forgot to mention "bitchez"...
No thought police, in fact it's the opposite. I'm offering a cash payout to stop fucking up my reading pleasure.
On an economics blog that seemed a sensible shoice. Apparently I was shwrong.
Is it booze? Do I need to offer booze, not BTC?
What kind of booze?
Rare Cachaça, made from barley produced at my farm and distilled in Palisade, a locality not far from me.
First people ask for someone to change, then they enforce it with intimidation and even violence. Anytime I see someone disagreeing with a constitutional right the is not being expressed in a vulgar or demeaning way I call that "thought police".
Oh btw, this is much more than an economics blog.....
We called out some folks...
Not annoying people with old over-used worn out fads and cliche's is called common decency, aka "not being a dick."
We ended catch-phrases for some folks.
I up'ed you for the Samuel Jackson 'Snakes on a Plane' reference.
my co-worker's ex-wife makes $84 every hour on the internet . She has been laid off for six months but last month her check was $18827 just working on the internet for a few hours. go to this website... www.works3.com
Agreed. Yearly studies are difficult, especially in the modern era (post electronic/global markets), to find statistical significance. Even four for four would be a tough sell on the downside for this Yinzer.
Cheers.
So when do we see some fireworks?
Reminder Ignore the 2015 year-end targets BITCHEZ
Ain't going beyond September.
from Tyler:
"the point here is that the major source of uncertainty among Wall Street forecasters remains on what the price multiple should be on the future earnings trend (and this assumes they don't en masse completely blow the macro call). Are they generally optimistic or generally pessimistic can account for a large explanation of the generally, double-digit difference in the higher year-end targets versus the lower year-end targets. If the current multiple is, for example 15, and a pessimist anticipate a 0.5 change and an optimist estimated a 2.0 change, then this 1.5 difference is 10% of the original 15. This is an important idea, as we uncover an additional 12%-or-so spread that risk mis-timing forces onto things.
So not much is truly known about the equity returns when considering the multiple sources of error uncertainty. When Wall Street strategists start the year by providing a lower return forecast, they've added very little helpful information for long-term asset allocators.
This is due to the current lack of Wall Street discussion of risk modeling into calendar-year investment projections. But similar to the trend in providing a broader distribution of rankings and binomial paths, perhaps this knowledge will one day enter the mainstream. For now though, those who partake in these quirky rituals of utilizing full year targets for important long-term, investment decision making could heed the quote of the 19th century social reformer, Robert Owens:
All things I thought I knew; but now confess
The more I know, I know, I know the less."
END OF THE QUoTE
think about that for a moment
It means he same thing since 2009, btfd...the fed will shortly announce qe 4.
"A mere 4 precedents is not enough to produce any statistically significant conclusions for us."
But you wrote the article anyway.. Thanks. I guess..
The comments are more entertaining than most of the articles.
It means I literally sold almost all of my Intel and bought the same amount of Apple.
Find the Lady, where's the Lady, it's called 3 Card Monte. Make your choice or move along!
You're mistaken. I need not make a choice between any of these paper frauds. I moved along about six years ago, and I couldn't be happier with the amount of actual assets I've been able to accumulate at depressed prices.
In other words, you sold it all and bought a catamaran. Now you have a trimaran with Bluetooth.
Same suffering, conditions you choose.
Your assumptions are both childish and assinine. There's enough stupid in this World, we don't need to hear it in the Church of Truth. So do us a favor, go buy your precious APPL stawk, and shut up.
I have no AAPL, my choice is pure Barnaby, I'm the stawk of teh future. Look at my face, you think I can fail?
Depends. What was your goal? If you meant to entertain me, success. If you meant to show any sign of intelligence, fail.
The addition of chocolate to milk. If you have benefited, God bless you.
looks like a narcissistic options trader who's been trading for 5 years and thinks he's a genius. Where's the coke?!
It's actually the shitty journalist who's been writing for 20 years and thinks he's a reporter. Where's my bowl?
For any given day, week, time period in question, I know what happened next. The markets did something and if it didn't fit the narrative the 3:30 algos were unleashed and magically people were able to say that everything is better because of x results over y period of time, just look and see.
People should watch this chart that shows the costprices of oil and who benifits and who doesn’t.
Russia for example has a onshore production cost that is way lower than the current price not including the rubble drop which makes it even cheaper.
https://oilprice.com/images/tinymce/Evan1/ada395.jpg
&
https://oilprice.com/images/tinymce/Evan1/ada394.png
So OPEC will cut production because it’s bleeding money bigtime while onshore in central and south America and Russia are almost the only once who make a profit.
So what if Obama was talking with Putin to play a opera to bankrupt OPEC? Remember the open Mic?
Seems Russia bought out all the foreign shareholders of their enrgy companies at
bargain basement prices last month.
Putin out goldmanned goldman at doing Gods work.
Never let a crisis go to waste.
The trend is your friend?
Who ever started with the down arrows already.... Fuck off BITCH.
People are angry, afraid, and frustrated - you just happen to be the punching bag that is at hand. No different than chickens that are stressed pick at one poor cell mate until dead.
Means nothing except 300 words to fill space.
in the perversion that passes for the free market today another recession is almost required to restart another run towards "real" normalcy. the recession would destroy enough weak capital to make room for another helicopter money drop. in other words, the old qe money must be destroyed to make room for the new qe.
i think we will be able to refinance our mortgage at 3% no points this year.
Set-up to make January look good (as in "As January goes, so goes the year")?
Call the coroner.
simple . it means buy the fucking dip you fucking morons.
It means that it is getting close to buying more PM time. It has been a while since I bought any but that day is coming soon. They have beaten the shit out of metals but I think there is one more serious shot to come our way and that will be the trigger for me. Keep on making the metal cheaper for me you banking fuckers. I know exactly what I am going to hoard. I have a list.
Hell, I just found several rolls of silver dimes that have never even been opened. I forgot that I even had them but I want more of them. Why bother to open them? There are other coins I want but bullion has always been my game aside from my Russian coins. The Russian coins are for my children and not for me. It is their history and it is hard to collect.
A Hebrew name like Dana and you haven't studied its origin? Or the irony of Daniel in the den of Lyons and your entire name? If you did I believe you would know the answer or be much closer to one
Just like 11/26 Gold spike (and 3rd signaled event after the 2 previous airplane crashes the 3rd one 33 days afterwards) or the lights out in half the stadium just after half time just as the score passed 33 during the Superbowl for 33 minutes
And just like your article "This Signal Has Perfect Record Of Forecasting Year-End Gains" this signal is also perfect in its generation. You're just not tuned to the right frequency yet
I don't believe for a nanosecond that your father named you Dana just to have you taunted, ridiculed of beaten up in school for having a girls name. Start studying, hire a Mason or Kabbalist or ask your father. He knows he's just testing you to see if you know or can figure it out. Whether I mean your biological father or our Heavenly Father is up to you to figure out
Here's a hint. They signals are partially a shout out to the clowns of chaos and I don't mean our resident juggalette kuckles
it means you better btfd bitchez
If ever there was a period in history NOT to pay attention to Markit movements, it's NOW.
Wait, wait, let me guess! It means nothing? It means more QE? It means a 200 point pop at the open Monday? Okay, I give up.
If this web site is about investing ideas, then anyone following any of the one-sided bearish advice for the past seven years, has lost their asses. Not one bearish argument has proven to be correct. The Fed is laughing at the bears and they have plenty of ammo left. Limitless debt is now possible and it supports stock valuations. If obsolete fundamental analysis shows stock in XYZ company to be worth $25 under the Old Normal, with Fed intervention pushing the markets from around 6K to around 18K, a Fed factor of x3 must now be used. So, the stock should be at about $75. Bears have failed to embrace ‘New Normal’ thinking, and have missed out big time. They see stock buybacks as some kind of fraudulent earnings enhancement, not the Fed, it is all fine. Shorts have piled on every time a company warns, only to have their heads handed to them by the Fed factor.
Millions will never sell, and will buy every dip, knowing an omnipotent Fed now has firm control of the markets and has removed all risk. people know the Fed cannot let the markets tumble and will do “Whatever it takes”. Going against this mass mania is a fools errand. Dow 20K seems likely by the end of the month.
The bears are fighting the last war.
What does the big drop on the last day of the year mean? Maybe, just maybe, it means a big drop on the last day of the year.
Woop Woop! Plunge Protection Team engage all sectors!! Woop Woop Woop!
It means Kevin called in sick.