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In view of this excellent responce by JW, what is the key date for Nov 1999?
Is it the 10th or 17th, or?
Thanks,
BobR
----- Original Message -----
From: JW <JW@xxxxxxxxxxxx>
To: realtraders <realtraders@xxxxxxxxxxxx>
Sent: Tuesday, November 09, 1999 10:39 PM
Subject: RE: RT_Gen - congressional indicator
> The story below (apparently from the Washington Post) was posted to RT
back
> on May 20, 1997.
>
> Wall Street Students Enjoy a Good Recess
> By James K. Glassman
> Sunday, May 18 1997; Page H01
>
> Congress is scheduled to leave Washington on Thursday for what has come to
> be known euphemistically as a "district work period" -- that is, a recess
or
> Memorial Day vacation. Investors, pay heed. According to newly published
> academic research, this could be one of the best times to put your money
in
> the stock market.
>
> "Almost the entire advance in the market since 1897," the researchers
> conclude, "corresponds to periods when Congress is in recess. This is an
> impressive result, given that Congress is in recess about half as long as
in
> session."
>
> Impressive? Later in their report, the researchers call the results
> "amazing" -- a more accurate adjective. For decades, analysts have been
> studying the effects of seasonality -- that is, the external influence of
> the calendar -- on stocks. But, until now, no one has seen such a direct,
> simple and long-term connection between the congressional calendar and the
> market.
>
> Over the 96-year period that was studied, 89 percent of the gains in the
Dow
> Jones industrial average occurred when the House of Representatives was
out
> of session and only 11 percent when it was in session.
>
> Or, to put it another way, on the average day that the House was out, the
> Dow rose 0.054 percent, or roughly 4 points (based on the Dow's current
> level). On the average day that the House was in, the Dow rose only 0.004
> percent, or about one-quarter of a point on the Dow.
>
> The researchers also looked at more current history. They found that
between
> 1984 and 1993, the Dow rose a total of 326 points on days when the House
was
> open and 2,347 points when the House was closed. The Dow rose more than
> seven times as much during the closed periods -- even though the House was
> open nearly twice as long as it was closed.
>
> The research -- by Reinhold P. Lamb and William F. Kennedy of the
University
> of North Carolina at Charlotte; K.C. Ma of KCM Asset Management Group in
> Wilmette, Ill.; and R. Daniel Pace of the University of West Florida --
was
> published in the latest edition of the Financial Services Review, the
> Journal of Individual Financial Management (c/o JAI Press Inc., Box 1678,
> Greenwich, Conn. 06836).
>
> So, why does the market love it when Congress is out of town? Lamb et al.
> can only guess.
>
> "Perhaps," they write, the poor behavior of stocks while the House is in
> session "is due to the uncertainty generated while Congress is debating
> policy, regulatory and procedural issues. . . .
>
> "On the other hand, when Congress is in recess, no bills and regulatory
> matters are being formally debated or formulated. Perhaps the market
enjoys
> the temporary certainty exhibited by the absence of congressional
decisions,
> and responds with positive movements."
>
> Perhaps, perhaps. Then again, some of the effects of seasonality simply
> can't be explained at all. You just have to take them -- or leave them --
at
> face value. Here are some of my favorites:
>
> Monday is by far the worst day of the week for the market. Since 1952,
the
> average Monday has produced a negative return (though lately, Mondays are
> getting better). Every other day of the week, the market is up more than
> it's down. Friday is best, up 57 percent of the time (vs. 46 percent for
> Monday).
>
> The last four days of the current month plus the first day of the next
> month comprise the market's best period. "While the market has risen on
> average 52.4 percent of the time, the prime five days have risen 56.4
> percent," writes Yale Hirsch in the Stock Trader's Almanac (201-767-4100),
a
> compendium of many seasonality phenomena.
>
> December and January are the best two months for the stock market while
> September is the only month that shows a loss.
>
> Congress buffs realize that the House is usually out of session for most
of
> December and January and back in session for September. The authors of the
> recess study, however, discount the importance of monthly seasonality on
> their results. They perform a regression analysis, controlling for the
> "January effect," and conclude that it "is not significant"; congressional
> recess is.
>
> Since Andrew Jackson (1832), the election year and the year just before
it
> have produced stock market returns that are more than seven times as great
> as during the other two years of the election cycle.
>
> The worst year in the cycle comes just after an election (that is, a year
> like 1997). Since 1832, such years have produced 22 losses and 19 gains,
for
> an aggregate loss of 3 percent. In the year before an election, the market
> has had 28 gains and just 13 losses, for an aggregate return of 295
percent.
>
> The worst year of the decade -- by far -- is the seventh. Since 1885,
> according to Hirsch, the market has declined eight out of 11 times in
years
> ending in "7." By contrast, the market has never lost ground in a year
> ending in "5."
>
> This year, therefore, gets a double-whammy. The Standard & Poor's
500-stock
> index has produced double-digit losses in each of the last five
> post-election years ending in a "7." Average loss: 20 percent. So far in
> 1997, the S&P is up 13 percent. Could a loss of 30 percent or more for the
> last 6 1/2 months of this year be inevitable?
>
> These numbers are endlessly fascinating, but the question is whether to
take
> them seriously when investing. I have two rules:
>
> The simple fact that a system, or a seasonal phenomenon, has racked up
> impressive returns in the past is not enough. It has to make rational
sense
> as well. Very few systems meet this test.
>
> With a good database, I could devise a formula that, when back-tested
(that
> is, applied to historical performance), works spectacularly well.
>
> For instance, I could select a portfolio that includes the 33rd, 66th,
99th
> stock (and so on) on the alphabetical list of New York Stock Exchange
> companies that appears in The Post every day. Then I could check this "33n
> portfolio" against real results going back 20 years. Let's say it returns
an
> annual average of 9.5 percent. That's not too good, so I'll try a
portfolio
> of the 34th, 68th, 102nd, etc., stocks. Through trial and error, there's
no
> doubt I can find a formula that has significantly beaten the market as a
> whole.
>
> But would I invest in such a portfolio for the future? Of course not. Its
> basis is just a silly little random device, with no reasonable basis.
>
> This is my impression of most seasonality effects. Certainly, there is no
> decent explanation for a year ending in "7" being worse than a year ending
> in "5." Election cycles? Maybe. The argument is that incumbents try to
goose
> up the economy in the year of an election and the year just before,
through
> increased spending and perhaps tax cuts. But, then, wouldn't the market be
> wary that such moves would lead to an overheated economy and higher
interest
> rates in the future?
>
> I've said in the past that the Dow 10 theory makes sense since it selects
> the highest-dividend stocks out of the sturdy 30 companies in the Dow
Jones
> industrial average. A high dividend yield often indicates that a stock is
> undervalued, so the Dow 10 (or "Dogs of the Dow") is a value-stock play,
> which, academic research shows, beats the market over time.
>
> Even if seasonal effects exist, prudent stock market investors generally
> should ignore them since such investors buy and hold stocks for the long
> term -- that is, through seasons.
>
> The two most important facts that any investor needs to understand are
that,
> over the past 70 years, stocks have returned an annual average of 10.5
> percent and that, when held for 10 years or more, stocks aren't much more
> risky than bonds or even Treasury bills.
>
> Recognizing that the market makes nearly all of that 10.5 percent gain
when
> Congress is out of session is nice to know, but it's irrelevant to earning
> an overall 10.5 percent.
>
> If you want to take a chance by continually switching, with congressional
> peregrinations, in order to earn more, then be my guest. Just recognize
that
> you'll incur capital gains, brokerage commissions and heartburn. Call me
> stodgy, but while the "Congress effect" is amusing and even instructive,
> it's not going to guide my investing.
>
> If I had a big chunk of dough to commit to the market, maybe -- in light
of
> the new research -- I'd wait until Congress adjourns this fall (target
date:
> Nov. 14).
>
> Come to think of it, by then we'll nearly be out of this scary year that
> comes after an election and ends in a "7."
>
> Copyright © 1997 The Washington Post Company
>
> JW
>
> -----Original Message-----
> From: ROBERT ROESKE [mailto:bobrabcd@xxxxxxxxxxxxx]
> Sent: Tuesday, November 09, 1999 10:17 AM
> To: realtraders
> Cc: realtraders@xxxxxxxxxxxxx
> Subject: RT_Gen - congressional indicator
>
>
> Does anyone have statistics on the congressional recess indicator.
Folklore
> has it that the market does better when congress is on recess.
>
> BobR
>
>
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