The
last 20 years mostly represented a sideways market as the S&P 500 Index
shows in a weekly chart. The years of 2000 and 2007 were major peaks in the
stock market while the years of 2002 and 2009 marked the major market lows of
the past 12 years.
The
chart below shows the Index evolution of the May-October period of each year since
1992. In 14 out of the 20 cases, the market rose during the selected period but
if we eliminate the bull market of the 90’s, the number of wins and the number
of loses of the same period are approximately the same.
As
the presidential elections in the US are thought to be one of the main drivers
of the market in the election years, 2012 is challenging the investors with the
same question as the 2008, 2004 and 2000: Is this summer going to by shallow
and “red” or will it be “green” and full of life?
Without even
checking the fundamental market conditions of the previous election years, we
can state that 2012 is definitely different. Europe is facing a totally new
issue that the leaders are trying to solve for two years: sovereign debt.
Greece, Portugal, Spain, Italy and Ireland and the EU countries that are
closely watched by the whole world as they are having a tough time paying their
debts and refinancing themselves.
Going back to
the evolution of the S&P in the May – October period, we can notice that a
clear trend has rarely occurred. Most of the past examples are showing at least
one short term reversal. If we narrow down our research, we can see that out of
the 5 election years, none had a sharp up/down trend.
