Alpha Power Investing Newsletter

June 4, 2018

Into the Mid-Term Year "Dead Zone"

Several of Alpha's strategies are designed to take advantage of the tendency for the stock market to produce better gains during one part of the year (November through April/May) than during the remaining months. With 2018 being a mid-term election year, we want to look specifically at the "Dead Zone" period extending from June 1 through October 31 during each mid-term election year to see if there are any notable historical tendencies.

The Test
To highlight stock market performance during this time we will perform a test using month-end prices (NOT total return data) for the Dow Jones Industrial Average and go all the way back to 1900. From there we will look at the June through October performance for each of the 29 mid-term election years (1902, 1906, 1910, etc. through 2014) that have been completed since that time.

The Results
Figure 1 displays the hypothetical growth of $1,000 invested in the Dow Jones Industrial Average ONLY during the months of June through October during every mid-term election year starting in 1902 and extending through 2014.

The net result is a cumulative decline in value of -16.5%. In other words, an initial $1,000 invested only as described above would now be worth just $835. To put this performance into perspective, note that overall during the test period the price of the Dow Jones Industrial Average advanced over +49,800%.

A Closer Look at the Results
Figure 2 displays the cumulative June through October returns for the Dow Jones Industrial Average during each mid-term election year since 1902 calculated using month-end prices.

Some interesting figures to note:

  • Interestingly, the Dow actually managed a gain 15 times (52% of the time) and lost only 14 times (48% of the time). The problem is that the losses tended to be much greater than the gains.
  • The average gain was +10%, but the average loss was -9.9%.
  • The largest gain was +40.8% in 1938, the largest loss was -33.3% in 1930.
  • The Dow showed a double digit gain 4 times and a double digit loss 6 times.

As always, past results do not guarantee future results. There is no reason that the stock market cannot post a gain between the end of May 2018 and then end of October 2018. In fact, history suggests that there is better than a 50/50 chance that it will. But the real issue is the long-term historical lack of performance for the stock market and the tendency to occasionally post significantly negative results during this particular five-month section of the election cycle.

At a minimum:

  • Investors should be aware of the trend discussed above and should be prepared financially and emotionally to weather any storm that might arise.
  • Investors should also put in the back of their mind that if the stock market looks bad during the October time period, history suggests that it may be an excellent buying opportunity.

To read more about Alpha's strategies, please go to the Strategies and Performance page of our website at to read the brochures and fact sheets. 

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

Disclosures and Disclaimers: Past performance is not a guarantee of future performance. The returns illustrated above are not the returns of any Alpha strategy, do not represent actual trading and do not include management fees or the cost of funds, trading, or other expenses. Indexes are not investment vehicles and persons cannot invest directly in an index. The illustrations are designed to quantify the effect of certain time periods on the Dow Jones Industrial Average. 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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