The Little Book of Stock Market Cycles
Those who study market history are bound to profit from it.
Recurring events such as presidential elections, end-of-quarter rebalancings, options and futures expirations, tax deadlines, and holidays have a predictable influence on investors and markets.
Humans are creatures of habit, so know the habits of your fellow investors.
Being in a bull or bear market is the single greatest influence on a stock’s price.
The markets have never reached a lasting high during wartime.
In 1933, the United States passed the Glass-Steagall act which established the Federal Deposit Insurance Corporation and FDIC insurance for bank deposit holders.
Housing starts are indicative of how builders feel about the housing market and are important for two reasons:
- Homebuilding provides a lot of jobs
- Housing starts are a leading indicator for how the market feels about risk.
New home sales will generally be the last indicator to turn amid a new trend.
Until housing recovers, there is no chance for a meaningful or sustainable bull market to emerge.
The 4 Horseman of the Economy:
- The benchmark index
- Consumer sentiment
- Inflation
- Unemployment
The consumer confidence index is essentially a proxy for the middle-class sentiment around the economy.
Wars, recessions, and bear markets tend to occur in the first half of a presidential term, while prosperous times and bull markets tend to occur in the latter half.
Historically speaking, the best scenario for the stock market is a Republican Congress and a Democratic president.
Options contracts expire on the third Friday of every month, and four times a year leading into the end of each quarter (March, June, September, and December), options and futures contracts all expire on the same day, which is known as triple witching.
Expiration dates aren’t necessarily bullish or bearish, but they usually translate to greater volatility.
Down weeks tend to lead to down triple witching weeks.
11 of the last 19 bear markets have fallen in either August, September, or October.
Historically speaking, October is one of the best months to go long in the market, posting the most bear market lows than any other month.
The first five trading days of January, and even the month as a whole, are highly correlated with the rest of that year’s performance.
Historically, November, December, and January are the best 3 consecutive months to hold stocks.
On average, April is the best month of the year for the market.
President’s Day is the least bullish of all the holidays.
A simple but effective strategy that usually outperforms a standard buy-and-hold strategy is to buy in October and sell in May.