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Financial Illusions You May Not Know

It’s been said that if the palm of your right-hand itches, you’ll soon be coming into money. However, it’s also been said that if your left palm itches, you’ll soon be paying out money. There are many superstitious tales like these in existence, and you’ve most likely heard many of them. In this article, we’ll cover some that you’ve probably never heard of, and they’re, well, interesting.

January Barometer

The phrase "January Barometer" refers to certain traders' assumption that the performance of the Standard and Poor's 500 indexes, generally known as the S&P 500, in January may forecast its performance for the remainder of the year. The concept of the January Barometer was initially promoted in Yale Hirsch's 1967 book Stock Trader's Almanac. However, some traders continue to utilize it today. Supporters of this perspective think that if the S&P 500 increases between January 1 and January 31, it will predict a favorable result for the rest of the year. Furthermore, it claims that if the market performs poorly in January, it will most likely perform poorly afterward. Skeptics of the January Barometer idea will point out that matching events have not been regularly observed outside of the United States. It may thus be a brief fluke particular to the United States equities markets.

The January Barometer has had inconsistent outcomes in prior years. In 2018, the S&P 500 generated just under 6% in January but lost just over 6% on the year.1 The outcomes in 2017 were equally unclear, with the S&P 500 rising 2% in January before soaring 19% for the rest of the year.1 The January Barometer is an interesting theory; however, when it comes to investing, this theory should not be relied upon.

The Super Bowl Indicator

The Super Bowl Indicator is a theoretical stock market prediction. The Super Bowl Indicator is based on the belief that a Super Bowl victory for a franchise from the National Football League's American Football Conference (AFC) predicts a stock market drop (a down market) in the following year. A victory for a franchise from the National Football Conference (NFC), as well as those from the previous National Football League (NFL)—prior to the merging of the NFL and the American Football League (AFL) in 1966—means the stock market will grow in the next year (a bull market). As of February 2021, the theory had been right 40 out of 54 times, according to the S&P 500 Index.2 It failed to forecast a market downturn in 2016 and 2017, when the Denver Broncos and New England Patriots, both initial AFC franchises, won Super Bowls. Also worth noting: Despite the New York Giants (NFC) winning the Super Bowl, which was meant to signal a bull market, the stock market saw one of the worst recessions since the Great Depression in 2008.2

The Super Bowl Indicator is an act of pure entertainment in sports writing. As there is no strong connection between a football team in a certain league and the stock market in the United States, any relationship that can be found between the two is purely incidental. The Super Bowl Indicator is entirely useless for determining stock market performance: there is no reason to imagine that the victor of a football game determines stock market performance. However, it is a fun tale to keep up with!

Presidential Election Cycle Theory

According to Yale Hirsch, the author of Stock Trader's Almanac, the presidential election cycle concept shows that equity market returns show a similar tendency every time a new U.S. president is elected. According to this concept, stock markets in the United States perform the worst in the first year, then improve and top in the third year before declining in the fourth and final year of the presidential term. At that time, the cycle starts again with the upcoming presidential election. A wide range of factors can influence stock market success in a particular year, several of which have nothing to do with the government. Numbers alone cannot tell us whether this concept is valid; it must also be consistent from one election cycle to the next. From 1950 to 2019, the stock market gathered momentum in 73% of the calendar years.3 During the third year of the presidential election cycle, the S&P 500 witnessed an annual growth of 88%, indicating remarkable stability.3 For example, during the first and second years of the presidency, the market increased by 56% and 64%.3

Ultimately, the presidential election cycle concept prediction effectiveness has been inconsistent. Despite average market returns having been slightly slower in years one and two, as Hirsch anticipated, the trajectory of stock prices has not been constant from one cycle to the next. The positive trend in year three has proven to be more consistent, with average profits substantially surpassing previous years. Furthermore, nearly 90% of all cycles since 1950 have seen a marked increase following the midterm elections.3 Even if two variables are associated, like in this scenario with the election cycle and market performance, that still does not imply that the market will be bad or good. Markets may tend to rise in the third year of a presidency, but this is not due to any re-prioritization by the White House administration.

Sell in May and Go Away

"Sell in May and go away," as the phrase is popular in the finance world. It is based on the stock's lack of success during the previous six months, from May to October. The Stock Trader's Almanac promoted the historical pattern, claiming that investing in stocks as indicated by the Dow Jones Industrial Average from November to April and moving to fixed income for the remaining six months would have "delivered dependable returns with lower risk since 1950.4" The sole disadvantage of historical patterns is that they cannot foresee the future. This is particularly true of well-known historical trends. If enough individuals get convinced that the "Sell in May and Go Away" trend is here to stay, it will begin to fade. Initial sellers would all try to sell in April, then compete to purchase the stocks back ahead of the field in October.

Of course, the seasonal tendency's averages hide large changes from year to year. Seasonality's significance is often overshadowed by other, often more important, issues in any particular year. Selling in May would have messed investors up in 2020, as the S&P 500 fell 34% in five weeks in February and March due to the COVID-19 epidemic, only to regain 12.4% from May to October.4 "Sell in May" has also failed at the beginning of 2022, with the S&P 500 down 8.8% in April and 13.3% since the beginning of the year.4 In conclusion, while the historical pattern is unmistakable, its predicting ability is problematic, and the opportunity costs incurred might be substantial.

Schedule A Consultation with an Experienced Financial Advisor

We hope that you found the information in this article helpful and informative. However, it’s important to remember that these popular sayings are superstitions and should not be used in making financial decisions. The best way to build your financial future is to develop, implement, and monitor a strategy designed to address your individual situation, and that’s where Fourth Avenue Financial can help. If you are ready to start planning, we are here to help. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online:

Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.

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