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Can The 4th Quarter Save 140-Year "Year 5" Streak In Stocks?

Tyler Durden's picture




 

Via Dana Lyons' Tumblr,

4th quarters in years ending in “5″ have typically been big…but will it be enough to save 140-year streak of positive “year 5′s”?

Way back on January 3, we posted a note on an interesting and unusual streak. Using the S&P 500 (and the S&P Composite from Robert Shiller, pre-1950), every year ending in a “5″ has posted a positive return since 1875. In other words, the last 13 “5″ years have left stock investors “high-fiveing” each other. We will say right off the bat that, no, we do not, nor do we recommend basing one’s investment approach on this phenomenon. It is likely mainly due to coincidence, with a healthy dose of positive Presidential Cycle “Year 3″ tailwind mixed in for several of the years. Nevertheless, it is a consistent and compelling track record.

Of course we had to jinx it. At least the streak is in serious jeopardy at the moment, with the S&P 500 down roughly 8% going into the 4th quarter.

 

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The S&P 500 needs to close the year above 2058.90 to avoid breaking the 140-year old streak. That’s a gain of over 8% from current levels. A pretty tall task for the upcoming 4th quarter, huh? Actually, according to today’s Chart Of The Day, all it would take is an average “5″ year 4th quarter to close the year positively.

We looked at the performance of the Dow Jones Industrial Average (we have more confidence in that quarterly data than the S&P) in the 4th quarter of every “5″ year since 1900. As it turns out, all 11 of the years have displayed positive performance, with an impressive +10.3% average return.

 

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As the chart shows, the positively skewed performance is not the result of any “outlier”-type years either. One may argue that there are technically 2 outlier years in 1905 and 1985 (I like to chalk 1985 up to the Bears winning Super Bowl XX…but that’s probably just another coincidence), at +18.3% and +16.4%, respectively. However, the majority of the years (6) saw 4th quarter returns between +4.2% and +9.5%. So the consistency of this phenomenon has been impressive.

Again, we are not trying to claim that there is something magical about year “5′s”. Nor are we suggesting one go out and leverage their portfolios long for the 4th quarter based on this phenomenon. However, considering the history and consistency of the streaks surrounding year “5′s”, they are at least noteworthy. And with all of the bad news stemming from the stock market in the 3rd quarter, it is at least one dose of positive coverage, albeit unorthodox.

Can the 4th quarter bail investors out of the hole they’re in? Only time will tell, but they do have 11-for-11 and 13-for-13 streaks on their side. Then again, after a 12-game winning streak, even the ‘85 Bears lost a game.

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More from Dana Lyons, JLFMI and My401kPro.

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However, as @HumOnTheMarkets notes, the number of times the S&P 500 has finished the year positive - after being down 6% at end of Q3 - is ONE!

 

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Thu, 10/01/2015 - 15:25 | 6617289 Mark Mywords
Mark Mywords's picture

Depends on what the lone remaining trader - the Federal Reserve - wants stocks to do.

Thu, 10/01/2015 - 15:28 | 6617316 froze25
froze25's picture

There will be a 4Q bump from all the hurricane buying BS on the east coast.

Thu, 10/01/2015 - 15:42 | 6617400 Hype Alert
Hype Alert's picture

I think all the cheerleaders on financial TeeVee need to come back from all commercial breaks holding up 4 fingers for the 4th quarter comeback!

Thu, 10/01/2015 - 15:50 | 6617444 The Pope
The Pope's picture

Its quite challenging, in fact, to do that when your fingers are otherwise needed to deal with the histamine 'rhinitis' response to snorting coke.

Thu, 10/01/2015 - 15:50 | 6617443 BandGap
BandGap's picture

What does Gartman think?

Thu, 10/01/2015 - 15:29 | 6617313 Silverhog
Silverhog's picture

So if it doesn't would that be the mother of a thousand Hindenburgs? 

Thu, 10/01/2015 - 15:28 | 6617317 MadVladtheconquerer
MadVladtheconquerer's picture

Per Stock Trader's Alamanc, I believe that 2005 was actually slightly negative on the DJIA, which snapped the win streak.

 

Thu, 10/01/2015 - 15:29 | 6617320 franciscopendergrass
franciscopendergrass's picture

Shemitah trumps year-5.  Shalom muthafuckas

Thu, 10/01/2015 - 15:30 | 6617329 madcows
madcows's picture

anything can happen with "JanetPossible!"... "WonderPrint, Activate!  Form of... Debt!   Form of... QEazy!"

Thu, 10/01/2015 - 15:31 | 6617337 The Pope
The Pope's picture

Only Dennis Gartman could possibly know the answer to this.

Thu, 10/01/2015 - 15:40 | 6617385 Shleprock
Shleprock's picture

He'll BTFD and she'll crash like nobody's busness Jethro

Thu, 10/01/2015 - 15:46 | 6617414 The Pope
The Pope's picture

That man sure knows how to move markets! (the other way)

Thu, 10/01/2015 - 15:39 | 6617381 Bell's 2 hearted
Bell's 2 hearted's picture

Households are in the process (or will very shortly) finding out their 2016 health care premium (increases).

 

What will that do to holiday retail sales??

Thu, 10/01/2015 - 16:09 | 6617547 wmbz
wmbz's picture

They will rush out and buy hand over fist of course! It's programmed into the consumer.

Thu, 10/01/2015 - 15:43 | 6617402 Slowdrip
Slowdrip's picture

+1 for the 'Jethro'....

Thu, 10/01/2015 - 15:47 | 6617423 arbwhore
arbwhore's picture

QE4(eva)

Thu, 10/01/2015 - 15:52 | 6617455 shantyman
shantyman's picture

That's ALL YOU GOT???!!!!!! The numerical of the year??? CMON!!!

Thu, 10/01/2015 - 16:12 | 6617559 SillySalesmanQu...
SillySalesmanQuestion's picture

Can I get a grant to research the years ending in 6 so I can tell everyone what might happen next year...if we survive this year.
Please pass the hat for my grant, if you think this has any historical use in prognosticating the future...Many thanks ahead of time.

Silly

Thu, 10/01/2015 - 16:50 | 6617752 besnook
besnook's picture

someone do the math. how does a 5% devaluation of the dollar translate into the bottom line of the multinationals and you will have your answer to the conundrum. is there enough there to cause enough surprises to rally the market?

Thu, 10/01/2015 - 23:13 | 6619213 tommylicious
tommylicious's picture

Boomers gonna panic.

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