Market tidbits from pros in the know

By Dian Vujovich

With crystal balls in light supply, reading how the stock market will perform going forward is anybody’s guess. A look at the past, however, makes for an interesting read of another type.

Tucked within the many emails I receive each week, it’s not unusual to find some thought-provoking historical market tidbits. Below are a few from three of my favorite sources:

• From Primcor’s Weekly Market Review, May 11, 2015, comes this:“Former Federal Reserve Chairman Alan Greenspan made headlines on 12/05/96 when he delivered his famous “irrational exuberance” speech….directed at what he believed to be unrealistic stock values, proved to be premature as the S&P 5001 bull market run (which was 74 months old at the time) continued on for nearly 40 months while gaining an additional +105%2. Current Federal Reserve Chair Janet Yellen made her own headlines this last Wednesday (5/06/15) when she said that “equity market valuations at this point generally are quite high” and that “there are potential dangers there.” Ironically, Yellen’s comments came just 3 days before the S&P 5001 current bull market reached 74 months in length (source: BTN Research).”

•From Navelliler’s MarketMaill, May 12, 2015, and Gary Alexander’s “A “Goldilocks” Economy” piece:“U.S. stocks closed sharply higher on Friday as investors cheered a jobs report that showed economic growth but not enough, in the eyes of most, to warrant central bank tightening immediately. Analysts called the April employment figures a ‘Goldilocks’ report because it was just right for gains in stocks, “ said Evelyn Cheng, CNBC, Friday, May 8, 2015

“According to Investopedia, a “Goldilocks Economy” is defined as “an economy that is not so hot that it causes inflation, and not so cold that it causes a recession.” (Goldilocks is the protagonist of “The Three Bears,” in which one bowl of porridge is too hot, another is too cool, but the third bowl is “just right.”)

“The Goldilocks tale was first applied to the U.S. economy in March 1992 by David Shulman of Salomon Brothers, who wrote an article entitled, “The Goldilocks Economy: Keeping the Bears at Bay.” The term gained further currency when there were only two short, shallow recessions in the 25-year period from late 1982 to late 2007. The economy seldom overheated or turned too cool during that quarter-century, and the Dow rose from 777 in August 1982 to 14,198 in October 2007, a gain of 1,727% in 25 years.

“Then came the crash of 2008-09, ending the first era of slow-but-sure (“Goldilocks”) growth…”

•And from SeekingAlpha: “The third year of the Presidential Cycle has historically been the equity market’s best year in terms of performance, but with a gain of less than 3% YTD, 2015 has gotten off to a slow start. In fact, this year’s returns are the weakest for the third year of an election cycle in nearly 70 years (1947). …”

According to a table from the Bespoke Report listing the S&P 500s YTD returns in the third year of each Presidential Election Cycle since 1931, this year’s performance ranks as the fifth worst out of 22 occurrences.

“So, does this mean that the tailwind from the year three election cycle is not going to blow this year? Not necessarily. If we divide the list below by years where the S&P 500 was up more than 5% up less than 5% YTD, the average and median returns of the S&P 500 for the rest of the year are actually better in the years where the S&P 500 got off to a slow start.”