In his latest strategy note, Jeff Saut discussed why he’s becoming increasingly bullish. One point of interest was the Presidential year script. He writes:
“However, my sense is this is changing because if you parse the backgrounds of the newly elected members of Congress you find that many of them are not professional politicians. Moreover, if you speak to them they will tell you they really don’t want to be in Washington, but they think our country is off course and they want to fix it. I think this is one of the reasons the S&P 500 (SPX/1317.82) rallied 16% following the 2010 mid-term elections into its May 2011 high. This year the SPX is also following the presidential-year script, as can be seen in the chart on page 3. Hopefully, this correlation will continue, driven by the bullish theme of more practical leaders.”
These are always interesting factoids, but I have trouble putting a lot of faith in them. The thing is, no market is ever the same. History rhymes, but it does not repeat. You have to consider each event in solitude. This is a lot like the common mistake that people make in gambling. For instance, when looking at a roulette wheel spinning you might assume that 5 blacks in a row might mean that the odds of the next spin will favor red. After all, what are the odds of 6 blacks in a row? But this is totally wrong. Each spin is its own unique event. The odds are always 50% red/black or whatever the stupid green block detracts from those odds (damn you Vegas!).
So take these data points with a hefty grain of salt. They’re nice for some historical perspective, but with such a small data set it’s hard to quantify whether this is at all useful. Further, given the uniqueness of this year’s economic environment I’d say that the market will do what the market wants based on this year’s events and not the events of some past trends in randomly selected years….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.