Markets Are Firmly in the Grip of the ‘Dead Zone’

EST

The Dow Industrials recouped about a third of their rather significant losses before the bell — all within what we must acknowledge as a 2000-point ‘comfort zone’ ranging from around 23,000 to 25,000. The swings could become mind-numbing even if gurus continue to predict, as is their wont, that ‘something’ is about to happen. But if you follow the seasonal adage — i.e., investors should sell and go away in May — it may be time to prepare for one of the dullest off-season performances ever.  In his latest edition of Crosscurrents, my friend and colleague Alan M. Newman notes the following:

“We coined the term ‘Dead Zone’ probably 25 years ago, to describe the stock market’s obvious seasonal patterns. The ideas first offered up by Yale Hirsch and Norman Fosbach were too interesting to ignore. Simply put, for almost seven decades, there have been two very distinct seasonal periods – one good and one awful. Going back to 1950, $10,000 invested in the Dow Industrials for only the periods from the end of October through the end of April would now be worth $985,511.77. On the other hand, $10,000 invested for only the period from the end of April through the end of October would now be worth only $11,092.68.

“In other words, 98.9% of a passive investor’s portfolio would stem from the favorable seasonality. This stark comparison led to the old adage, ‘sell in May and go away,’ and for the most part, this has functioned as sage advice.”

A final, sobering note from Alan:  The Dead Zone’s grip appears to have widened since it was first described, extending beyond October into…. December. If so, the patience of investors is about to be tested to the utmost.

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Tuesday, April 17, 2018

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