Wednesday, January 07, 2015

The best year to own stocks?

In a couple of months, the raging bull of the stock market will turn six years old. The average bull market only lasts five years, and Jim Cramer is wondering if investors need to start worrying about the health of the bull.

To find the answer, Cramer once again turned to the charts to see what they predict. He has taken a step back with Ed Ponsi to take a good look at the big picture for the averages. Ponsi is a technician and managing director of Barchetta Capital Management, as well as Cramer's colleague at RealMoney.com.

According to Ponsi, this could be one of the best years to own stocks. Why? Because of the U.S. presidential election.

Ponsi stated that according to Jeffrey Hirsch, author of The Stock Trader's Almanac, the year before an election has a cyclical tendency to be the best year to own stocks.

From 1833 to 2012, the stock market has on average rallied 1.9 percent in the first year of a president's term, 4.2 percent in year two and 5.8 percent in the fourth year. Year three is the biggest, and has a return of 10.4 percent market gain in the Dow Jones Industrial average. The only year this didn't occur was in 1931, the height of the Great Depression.

"It's not just that the market tends to rise during the year before a presidential election. It's the consistency of this pattern that is so impressive," said the "Mad Money" host.

And there is more, the stars have aligned politically as well, assuming all political beliefs are put aside.

According to the average performance of the Dow industrials from 1949 to 2011, a Democrat president with a Republican Congress is good news. Since 1949, the average Dow return with this political combination was 19.5 percent. Wowzer!

Additionally, Ponsi sees that there is a pattern in decades that will help the averages as well. As strange as it sounds, the stock market tends to have top performance in years that end in the number five. Like, let's say… 2015. The Dow Jones has seen an average gain of 28.9 percent for years ending in 5, going back to 1895.

[via roy]

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