Stock Market/Inaugurations and Buying Opportunities

Trader Scott’s Market Blog

January 20, 2017

Friday’s Inauguration for Donald Trump will hopefully go smoothly, but there is something else to watch in regards to markets. And that is a high probability of a selloff around Inaugurations, after the euphoria of electing a new President (where the optimism comes from is baffling, but….). The following  data are for the Dow Jones’ highs established for the couple of months surrounding the Inauguration of a new Administration. More specifically, the highest high in that time period to the lowest low, before going to new highs again. And we’ll start with the 1968 election of Richard Nixon. The high was before the Inauguration on December 2, 1968 and the low was on May 26, 1970, with a loss of 35%. And of course Tricky Dick was in office during the worst stock market bear – January 1973-December 1974, when the Dow fell 50% during Watergate. Jimmy Carter’s stock market had a rough beginning, as it fell 25% from January 3, 1977-February 28, 1978. President Carter had the second worst Democratic returns ahead of only Woodrow Wilson.

The first “Make America Great Again” President, Ronald Reagan, came in around a rough stock market. The S&P 500 peaked in November of 1980, but with volatility the Dow continued to struggle to its’ high on April 28, 1981. It then fell 25% into the fabulous bottom on August 10, 1982. The Dow then rallied to 2750 in August 1987, leading into the October 19th stock market crash, where it bottomed at 1600 that very day, never to be seen again. It eventually rallied to the bull market peak in January 2000 of 11,750. So the returns were fabulous from where I measure the stock bull market to have begun, which is December 1974 at 570 on the Dow into January 2000. For years, I have vehemently been disagreeing about the stock market crash calls, and believe the stock market is headed way higher (when measured in today’s Dollars).  And the March 9, 2009 lows on the Dow of 6450 were a generational low. But going forward the monumental returns will not be in the general stock market. Resource stocks will be a fabulous place to be over the years, when bought into the huge selloffs. Initially it was about the PM miners, when I believed it was a great opportunity in December 2015. Since then, it has recently been about solar energy, biotech, and especially agriculture stocks. I hope to add other energy stocks, possibly this quarter. These are the sectors to me, and there are a couple more of interest, where those fabulous returns will be seen.

So back to the Inaugurations, with relatively benign selloffs under the next two Administrations, as that big bull market overpowered any weakness around the new President. The original George Bush had an 8 week selloff of 6% from February 8, 1989-March 27, 1989. Then the original Clinton (whom embarrasingly I voted for the first time) saw a quick dip of 6% from February 8, 1993-February 18. But in this current environment a normal 6% selloff would probably cause people to freak out. Then the second Bush (whom embarassingly I also voted for the first time), George (Hanging Chad), who had the second worst stock market performance during his weird Presidency. The high was on February 6, 2001 and the low was on March 22, 2001 – a drop of 25%. And on to the the next weird President, Barack Obama (whom once again embarrasingly I voted for the first time – not a great track record for sure). President Obama has seen a great stock market performance during his terms, despite his crappy “economic policies”, proving timing is everything. His returns were even better than the excellent returns under President Reagan, who supposedly had such great economic policies. This just fits in with my belief that economics do not equal markets. And the statistical phrase correlation does not imply causation is a phrase which is a big part of my view of life, and especially regarding markets. So we had two totally different economic approaches and similar market returns. Overall Democrats the “anti-business party” has seen better returns than the Republican “pro-business party” – 7% to 3%.

So this data can be integrated into an approach to the stock market, including how these new Administrations fit in cyclically/statistically year by year of the term. And the so-called January effect can be taken into account, especially in the first year of a new President. Currently, the thing to watch is the low in the Dow in the first week of January. If January finishes below the low of the first week, then it’s a warning sign for the rest of the year. At a minimum it should lead to a range bound year – very good for trading, but not for investing. A stronger cautionary sign would be when combined with the high for the month being in the first week. But if January finishes above the first week’s low, then we tend to see a great buying opportunity in late February-early March. So far this month, the high was January 6th at 19999. And the low was 19775 on January 3rd.

About

Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day. Scott returned to markets over fifteen years ago where he continues as an independent trader.