What Do The Cycles Say About 2020?

Last week, I took a just-for-fun stab at modeling expectations for what calendar year 2020 might look like in the U.S. stock market. And since stocks seem to only go up these days, the question of the day isn't whether or not the S&P 500 will advance on the year, but rather by how much.

If you recall, my just-for-fun model's "final answer" last week suggested the S&P 500 would close the year at 3618.47, which would represent a gain on the year of a nice, round, 12%. Given that the average return of the venerable index has been almost 9% since 1980 (8.93% to be exact, according to Ned Davis Research) and nobody sees a recession in sight, I'm happy leaning toward the bullish end of the projection spectrum these days.

While hardly scientific, I arrived at my official guesstimate by taking the average returns projected by my models (which included models on the economy, the technical health of the market, monetary conditions, inflation, leading indicators, the average election year return, and a composite of earnings models) assuming each model moved up and down one notch from current levels. It seemed to make sense to me at the time.

This week, I'd like to take a different tack and look at what some of the classic historical cycles project for the coming year.

What Do The Cycles Say?

Long-time readers of my oftentimes meandering morning market missive are very familiar with something called the "Cycle Composite". This is a computerized mash-up of the one-year seasonal, the four-year Presidential, and the ten-year decennial cycles created by the good folks at Ned Davis Research.

As I have stated a time or twenty, I don't manage money based on predictions, prognostications, gut hunches, or projections. However, I have learned over the years that stocks do often follow the seasonal cycles and as such, the cycle projection can be quite good at times. As in scary good. And at other times, it can be, well, utterly useless. After all Ms. Market does tend to have a mind of her own!

But the bottom line is the various cycle projections are inputs in my daily/weekly/monthly work. So, without further ado, take a peek at this year's projection from the cycle composite:

(Click on image to enlarge)

Source: Ned Davis Research Group

From my seat, this year's projection is interesting on a couple of fronts. First, while I'm sorry to disappoint our furry friends in the bear camp, the projection once again suggests the S&P 500 will sport a plus sign at the end of the year.

Second, note the relatively large swoon projected to take place from mid-April through early July. This tends to be due in large part to the tendency for uncertainty to enter in the game as it relates to the Presidential election - and specifically political convention season. However, once the market gets a feel for who will be in the race, stocks tend to recover.

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Disclosure: At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none - Note that positions may change at any time.

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