Alpha Power Investing Newsletter

April 2, 2018

Beware the "Worst Four Months"

At Alpha Investment Management we are students of the markets. A great deal of research - both our own and that of others - has revealed that there are a number of patterns that tend to repeat in the stock market over time. Recognizing these tendencies can be very helpful in formulating an investment strategy and also in recognizing when potential risk or potential reward is high.

One area of analysis that has proven fruitful is the Presidential Election Cycle, which breaks each four-year calendar period into a Post-Election, Mid-Term, Pre-Election and Election year. Within and across these time periods, certain patterns emerge. This month we will take a look at one soon to be potentially relevant pattern.

The Election Cycle Four Months at a Time

In our test we analyzed the performance of the S&P 500 Index across each four month segment of the 48-month election cycle to see if any four month periods offered consistently better - or worse - buying opportunities. The test that we ran uses monthly closing price data for the S&P 500 Index starting in January 1929 and works as follows:

We first looked at the performance for the S&P 500 Index during January through April of each Post-Election year from 1929 through 2017. We next looked at the performance for the S&P 500 Index during February through May of each Post-Election year, then March through June, and so on and so forth until finally in the last test we looked at the performance of the S&P 500 during December of the Election year through March of the Post-Election year.

While the results were enlightening in many ways, for the purposes of this newsletter we will focus on the worst four-month period historically to hold stocks within the context of the four-year election cycle.

The Worst Four Months of the Four-Year Election Cycle

Our test revealed that the worst four months to hold stocks within an election cycle has been June through September of the Mid-Term Election years. This is relevant as the next such period begins June 1, 2018 and extends through September 2018. Before hitting any panic buttons lets first review the historical results.

Figure 1 displays the growth of $1,000 invested in the S&P 500 Index (using closing month-end price data) only during June, July, August and September of every Mid-Term Election year between 1929 and 2017. As you can see in Figure 1, an initial $1,000 invested only during these four months out of every four years would have declined in value to just $516, a loss of -48.4%.

Figure 2 displays the four-month return for each June through September Mid-Term Election year period.

As you can see in Figures 1 and 2 the results are by no means uniformly bearish. In fact, this four-month period has actually showed a gain 12 times and a loss only 10 times and the average return for all periods in the list was a seemingly meager -1.9%. So what's the concern? Simple. When this period is bad, it tends to be "very bad."

During the 10 losing periods:
  • The average loss was -14.7%
  • The worst period was a loss of -27.2% in 1974
  • 6 of those periods experienced a loss in excess of -10%. These periods appear in Figure 3.

There is no way to know if June through September of this 2018 Mid-Term Election year will be one of "the bad kind" or not. But investors should be aware of the potential danger and should be alert to the fact that if the market falters after May 31st of this year, a significant decline is possible.

The Alpha Mid-Cap Power Index Managed Account strategy, The Formula and the Alpha Seasonal Strategy will all be in low-volatility bond funds during this period.

To read more about Alpha's strategies, please go to the Strategies and Performance page of our website at to read the brochures and view the actual performance results. 

Jay Kaeppel
Vice President and Director of Research
Alpha Investment Management, Inc.

Disclosures: Past performance is not a guarantee of future performance. Indexes are not investment vehicles and persons cannot invest directly in an index. The returns illustrated above are not returns of any Alpha Investment Management strategy and do not include management fees or the cost of funds, trading, or other expenses. To see the impact of these costs, please refer to the net of fees and expenses performance data for specific Alpha strategies. The illustrations above are designed to quantify the effect of certain time periods on the S&P 500 Index. The data used to construct the illustrations was obtained from third-party sources. While Alpha believes the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.

Alpha Investment Management, Inc. is a SEC registered investment advisor. Such registration does not imply a certain skill or training and no inference to the contrary should be made. The information and opinions expressed in this document are for informational purposes only. Any recommendation or opinion made in this document may not be suitable for all investors. The information contained herein does not constitute and should not be construed as investment advice, an offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

© 2018 Alpha Investment Management, Inc.

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