It’s always tempting to say that this year is playing out just like … well, fill in the blank. No matter what year you state, based on your memory, you are likely to be wrong. This year is not like 2010, and it’s not like 2004. In fact, it’s not like any year in the past 20.
Analysts at Bespoke Investment Group wondered what year 2011 was really most like, so they ran correlation of the daily closing prices of the S&P 500 through May 20 of this year and every year since 1928. It was a good idea, and the results may surprise you.
The table below, excerpted from Bespoke research, shows the ten years with the highest statistical correlation to the daily price movements of 2011. It turns out that the five years with the highest correlation to 2011, and eight of the top 10, were all third years of the presidential cycle.
If the correlations hold firm, the record suggests that bulls will retain control of the tape through the rest of the summer and on to the rest of the year.
The BIG analysts note there was only one year of the ten in which the S&P 500 was down from May 20 through the end of the year, and that was during the some of the fiercest stages of World War II in 1943. In all of the other years, the S&P 500 saw full-year gains, and the average overall rest of year gain was of 8.3%.
Note that the years with the most similar year-to-date result to 2011, which were 1951 and 1955, saw 10.5% and 20.5% gains from May 20 to the end of the year.
Great years for the stock market, but both were rife with trouble. By 1951, more than 50,000 Americans had died in the Korean War. President Truman was booed when he threw out the first pitch for baseball season.
As for 1955, the market suffered its largest one-day crash since 1929 following word in midsummer that President Eisenhower had suffered a heart attack. The year would later be seen as the start of the civil rights movement after seamstress Rosa Parks refused to move to the back of a bus in Montgomery and sparked a bus boycott led in part by a little-known preacher named Martin Luther King.
I am also intrigued by the inclusion of 1995 on the list. Way back at the end of 2010, I argued that 2011 could end up to be a lot like that year in that the financial politics setup was similar: both followed a midterm elections swept by Republicans that forced a Democrat in the White House — Clinton then, Obama now — to move to the political center.
Bottom line: Any way you slice it, the historical precedents are lining up to suggest that the next seven months have a fighting chance at being positive for investors, despite the near-term setback.
For more guidance like this, check out Markman’s daily trading service, Trader’s Advantage, or his long-term investment service, Strategic Advantage.
