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Five Stock Market Indicators For 2019 You Should Ignore

By

Jeffrey Kleintop

CFA, Senior Vice President, Chief Global Investment Strategist

Jeff specializes in analyzing international market trends and their financial implications. He's frequently cited in a range of national media outlets including The Wall Street Journal and The New York Times. He has an MBA from Pennsylvania State University.

February 04, 2019

Member for

2 years 3 months
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Submitted by Site Factory admin on Mon, 02/04/2019 - 12:22
Five Stock Market Indicators For 2019 You Should Ignore

When a situation feels too complicated, people often fall back on rules of thumb to make decisions.

During this time of year, we are often asked about market folklore like the “Super Bowl indicator” which can be revealed to have merely a coin flip accuracy.

No indicator provides a guarantee of future performance, which is why diversification and a long-term perspective are so important to long-term investing success.

As investors ponder what this year may hold in store for the markets, the inter-relationships between politics, economics, fiscal policy, monetary policy, and corporate actions can seem very complex. Investors may feel overwhelmed and seek a simple answer. When people feel there is a situation that is out of their control or is too complicated to analyze, they often fall back on rules of thumb to make decisions.

We don’t place any value on market folklore like the “January Effect” or the “Super Bowl indicator,” but we are often asked about them during this time of the year. Jittery investors are looking for clarity in an environment where little is certain. We’re revisiting these indicators this year to remind investors that they only appear to have stood the test of time.

Super Bowl

Market prediction for 2019: Loss 
Historical accuracy claim: 85%

The Super Bowl indicator claims that the stock market goes up for the year when the winner of the Super Bowl comes from the NFC, but when an AFC or expansion team wins, the market falls. When the underdog Denver Broncos defeated the Green Bay Packers in the 1998 Super Bowl, the indicator had been correct in 23 of 27 years, or 85% of the time, as measured using the MSCI World Index.

However, since 1998, the Super Bowl indicator has had a poor record; it has only been correct about half of the time. The most notable failure was the New York Giants’ upset win in 2008 over the New England Patriots, which predicted a bull run for stocks—instead stocks plunged that year as the financial crisis took hold. This year’s win by the Patriots on February 3 was widely watched, but not for its forecasting ability.

Super Bowl Indicator not so super at forecasting

Super Bowl Indicator

Source: Charles Schwab, Bloomberg data as of 2/3/2019. 
Past performance is no guarantee of future results.

January Effect 

Market prediction for 2019: Loss
Historical accuracy claim: 81%

As January goes, so goes the year according to this market adage. It is true that January has more consistently indicated the direction of the stock market for the year than any other month. When the MSCI World Index posted a positive return in January, the year as a whole ended with a gain 81% of the time since 1969, when the index began. 

Again, this sounds impressive, but when January was negative, the year suffered a loss just one-third of the time. It seems January doesn’t really have much of an “effect.”

January Effect not very effective at forecasting

January effect

Source: Charles Schwab, Bloomberg data as of 2/3/2019.
Past performance is no guarantee of future results.

First five days

Market prediction for 2019: Gain 
Historical accuracy claim: 79%

This popular piece of market folklore says that the direction of the stock market during the first five days of the year determines whether the world’s stock markets will be up or down for the year. The support for this indicator comes from the fact that over the past 37 years, a full year of gains followed in 22 of the 28 times the first five days of January posted a net gain  for the MSCI World Index—at first glance a 79% accuracy level. But is it significant? Not very. Here are three things to keep in mind:

  1. The MSCI World Index has posted a gain for the year more than 70% of the time, no matter what the first five days have done.  
  2. A decline in the first five days has been accurate only about one-third of the time at predicting a down year.
  3. The most recent example was just last year; stocks posted a gain in the first five days, but the index fell in 2018. 

Groundhog Day

Market prediction for 2019: Loss 
Historical accuracy claim: 72%

If the world’s most famous forecasting groundhog, Punxsutawney Phil, sees his shadow we are expected to get six more weeks of winter. If he does not, it’s predicted that the cold gives way to an early spring. A lesser known prediction that accompanies seeing his shadow is for a gain in the stock market. When Phil has seen his shadow, temperatures have been colder than usual in the U.S. 47% of the time since 1969—a coin flip. However, he seems to be much better at predicting stock market performance. Stocks around the world (MSCI World index) have been up 72% of the years Phil has seen his shadow. This year, on February 2, he did not. 

Of course, the fact that the stock market has posted a positive total return 73% of the time regardless of whether Phil saw his shadow or not makes Phil’s stock market prediction about as useful as his weather prediction.

Groundhog forecast accuracy is just a shadow

Groundhog Day indicator

Source: Charles Schwab, Bloomberg data as of 2/3/2019.
Past performance is no guarantee of future results.

Chinese Lunar New Year

Market prediction for 2019: Gain 
Historical accuracy claim: 100%

2019 is the year of the pig. A look back at average annual world stock market returns by Chinese zodiac sign shows us that the year of the pig has been close to the best in terms of performance.

However, there have only been four prior years of the pig since the inception of the MSCI World Index: 1971 +18%, 1983 +22%, 1995 +21%, and 2007 +9% demonstrating the lack of a substantial basis for any accuracy claim for this indicator of market performance.

No sign of accuracy: average annual global stock market performance by zodiac sign

Zodiac sign indicator

Source: Charles Schwab, Bloomberg data 02/3/2019.
Past performance is no guarantee of future results.

No easy answers

Fortunately, we do have some potentially useful tools to help guide us on what may lie ahead for the markets. You can see some of our favorite indicators for 2019 here: 2019 Global Market Outlook: Mind The Gap

The enduring popularity of these five strategies for investment decision making—despite their history of an at best coin-flip accuracy when examined closely—is a testament to the desire for an easy answer on how to invest in today’s interconnected and complex markets. The truth is that no indicator provides a guarantee of future performance, which is why diversification and a long-term perspective are so important to long-term investing success. 

Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. 

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. 

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

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