While We Wait…

While we wait on this week’s big events, which include the FOMC announcement and Janet Yellen press conference Wednesday afternoon, the election results in the Netherlands, meetings of the Bank of Japan, the Bank of England, and the Swiss National Bank on Thursday, and the Brits triggering Article 50 to initiate the BREXIT, I thought it would be a good idea to check in with our cycle work.

With just about everybody and their grandmother expecting a correction in the near-term, I wanted to know if the seasonal tendencies favored some sort of setback. And while I have learned the hard way over the past thirty years to be leery of the crowd – especially when they are absolutely positive about what will come next – every once in a while, the thing that EVERYBODY expects to happen winds up being a self-fulfilling prophecy.

Before we begin though, let’s be clear about one thing – there is no such thing as a crystal ball that can predict the future in Ms. Market’s game. No, as the late Marty Zweig used to say, “Those who rely on a crystal ball will wind up with an awful lot of crushed glass in their portfolios.”

With that said though, it is fair to say that the stock market does tend to follow seasonal patterns at times. But at other times, well, not so much.

In working with the seasonal patterns for going on twenty years now, I have learned that when the market is “in sync” with the historical/seasonal cycles, it tends to stay in sync for some time. But… there are also times when Ms. Market does whatever she darn well pleases for extended periods.

The beginning of 2017 has thus far seen examples of both. As the chart below shows, stocks followed the January pattern to a “T” but then completely diverged in February by continuing to move higher when the cycle composite suggested stocks would falter.

To review, the cycle composite, which is the brainchild of Ned Davis Research Group, combines the one-year seasonal, the four-year Presidential, and the ten-year decennial cycles going back to 1928 in order to create a composite cycle projection. In short, the blue line is the cycle composite’s projection of the market’s trend and the red line is the movement of the S&P 500 itself.