A Good Omen for 2005, If You're Superstitious (I)

As summarized by Dr. Yardeni at:
http://www.yardeni.com/pub/yearsendingin5.pdf ,
this year the stock market should see a healthy rise, if you believe that historical patterns are likely to repeat themselves.

A look at S&P 500 performance since 1925 reveals:

Years Ending in: Average Return (Number of Yrs. with Neg. Returns)

0: -2.0% (5)
1: -1.4% (4)
2: 1.1% (3)
3: 14.0% (2)
4: 5.6% (3)
5: 27.4% (0)
6: 8.2% (2)
7: 2.5% (3)
8: 18.5% (1)
9: 6.1% (3)


Year: % Change in S&P 500

1925: 19.8%
1935: 41.4%
1945: 30.7%
1955: 26.4%
1965: 9.1%
1975: 31.5%
1985: 26.3%
1995: 34.1%
2005: ?

The years ending in a "5" have shown the best performance since 1925. For these years ending in a "5" in the middle of each decade:

1. None have ever shown a negative return;
2. The average return is 27.4%;
3. The lowest return is 9.1%.

This forbodes well for 2005, assuming the pattern continues to hold true.

So far this year, the S&P 500 has been trading in a very narrow range:

Close on 31-Dec-2004: 1212
Low: 1164 (-4%) on Jan. 24
High: 1225 (+1%) on Mar. 7
Today: 1188 (-2%) on Mar. 16

Interestingly, as shown in the graph in Dr. Yardeni's report, March has typically been a weak month, following by a steep rise in stock prices in April.

Assuming history repeats itself, the sagging performance we are seeing this month could all be reversed in April, and by the end of the year the S&P 500 could show a solid double-digit gain.

Realistically, I doubt that the historical data actually shed any light on this year's performance. However, being long a portfolio of stocks, I do hope that the historical pattern continues to bear fruit.