Where Do We Go From Here?

The State of the Market

Long-time readers know that I'm a fan of historical market cycles. As the saying goes, history doesn't repeat exactly, but it often rhymes. And over the years, I've found this tends to the case in the stock market, more often than not.

To be clear, I am not suggesting that stocks follow historical patterns on a daily, weekly, or even monthly basis. Nor am I suggesting that one can look at history to figure out what is going to happen next in the stock market.

However, what I have learned about historical patterns is when the market is "in sync" with its cycles, a projection of where the market is headed - from a general trend perspective - can be a good tool. As in scary good. But at other times, well, not so much!

The bottom line for me is that the historical patterns can be useful in many ways. So much so that I incorporate the market's historical cycle projections over the next week, month, and three-months into my daily work.

To review, I follow a cycle composite created by Ned Davis Research Group. The composite is basically a mashup of the 1-year seasonal, the 4-year Presidential, and the 10-year decennial cycles going back to 1928.

So, without further ado, let's look at the cycle and its components and see what they tell us...

First up is the 1-year seasonal cycle for 2021. Remember, we are looking at these charts from a general directional standpoint, not on an absolute return basis.

Below is the seasonal cycle for the S&P 500 for all calendar years going back to early 1928.

(Click on image to enlarge)

* Source: Ned Davis Research

This chart alone makes a pretty good argument for investing in stocks. In short, history shows the stock market tends to rise during the vast majority of calendar years.

In looking at the historical trends, the S&P typically starts the year off in fine fashion, with some occasional pauses. Then there is a larger pause - or correction - around May as the market "catches its breath". Usually, the rally then continues until the "fall swoon." And after that, "year-end" rallies tend to ensue.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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