Alpha Power Investing NewsletterJuly 3, 2017
Seasonal Possibilities in the Months Ahead
The investment strategies offered by Alpha Investment Management are based on a variety of reliable seasonal trends that have been established in the markets over time. While the strategies we offer are traded exactly as detailed in their respective brochures, there are several other seasonal trends that are of current interest and potential relevance.
July and December in Post-Election Years
From a strictly seasonal standpoint it can be argued that the only months that really matter during a post-election year (i.e., 2017) are July and December. The blue line in Figure 1 displays the cumulative % return gained by holding the Dow Jones Industrial Average ONLY during the months of July and December for each post presidential election year since 1900, versus holding the Dow during ALL OTHER months during each post presidential election year.
As you can see in Figure 1, the returns generated during July and December have historically been mostly favorable. The returns for all other months combined have been hit-or-miss. While Alpha Investment Management cannot predict future market action, with the major market averages presently near new all-time highs, investors should not be surprised if these averages breakout to the upside and run higher during the month of July. However, before becoming concerned about "missing out" - since the Alpha strategies are out of the stock market until late October - consider the possibilities discussed below regarding August, September and October.
The Post-Election Danger Zone (August through October)
The August through October period during post-election years has witnessed a number of significant market declines in the past and should be viewed as a "Post-Election Danger Zone." While there is no way to predict whether or not 2017 will fit this mold, given the potential for a rally to new highs in July - which could exert a strong "pull" on investors to rush in and "join the party" - it may be useful to have this potential "what if" firmly planted in the back of one's mind.
Figure 2 below displays the growth of $1,000 invested in the Dow Jones Industrial Average (using price data only) during each Post-Election Danger Zone since 1900.
Year-by-year results vary widely and in total 14 Post-Election Danger Zones have witnessed a gain and 15 have witnessed a loss. However, the median decline (-9.5%) is over twice as large as the median gain (+4.5%) and the cumulative loss of equity achieved by holding the Dow ONLY during August, September and October of post-election years is -56%.
It is also interesting to note that only two Post-Election Danger Zones have witnessed a gain in excess of +9% (+17% in 1925 and +14.6% in 1945). On the other hand, eight Post-Election Danger Zones (1901, 1917, 1929, 1937, 1957, 1981, 1997 and 2001) have witnessed a decline of -9% or more. 1997 saw the Dow decline -9.5% and 2001 witnessed a decline of -13.7%.
The purpose of presenting this information is not to predict or even to imply that the stock market is doomed to decline between the end of July 2017 and the end of October 2017. The purpose is simply to highlight the fact that, historically, if and when the market is "good" during August through October during a post-election year, it is "OK". But when it is "bad" during this period it tends to be "very bad."
It is easy to dismiss this "study" as an anomaly or calendar quirk and again we are not "predicting" that the stock market will rally in July and then collapse somewhere during the 2017 Post-Election Danger Zone. But history does suggest that this is a possibility. Our goal at the moment is to manage investors' expectations and to highlight the potential relative safety of conservative bond funds - even if the stock market goes "off to the races" in the near future.
To learn more about our strategies, go to the Strategies and Performance page of our website at www.alphaim.net to read the brochures and fact sheets.
Disclosures: Past performance is not a guarantee of future performance. Indexes are not investment vehicles. The returns illustrated above are not returns of any Alpha 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 representative market indexes.
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.
© 2017 Alpha Investment Management, Inc.
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