SentimenTrader ---- Redux: The 20-Year Cycle (Part II)

 Redux: The 20-Year Cycle (Part II)

I am on vacation this week but have decided to rerun some older pieces that have proven useful - and which will hopefully continue to be useful. This piece is Part II of a three-part series on the 20-Year Cycle in the stock market, which originally ran on 2021-02-11. It highlights a 42-month period that occurs every 20 years, starting on 1902-09-30. The most recent period began on 2022-09-30 and extends through 2026-03-31. Through 2024-08-21, the Nasdaq 100 is up over 80%, the S&P 500 Index is up over 56%, and the Dow Jones Industrials is up over 42%.

This is Part II of a three-part series regarding the 20-year cycle in the stock market.

Part I of this series contained "The Bad News", i.e., that the first 30 months of each decade that has started with a Presidential Election Cycle (i.e., 1900, 1920, 1940, etc.) has seen the Dow Jones Industrial Average decline in each case. The good news is that so far the market is bucking this trend, with the Dow above its close of 12/31/2019.

There is more "Good News" that typically unfolds as the decade progresses. Shortly after the "Bad News" period within the 20-year cycle ends, a favorable 42-month period begins/

The 20-Year Pattern - Part II

Part II of our 20-year pattern starts on September 30th, 1902. From this date, we will look at the next 42 months as a seasonally "favorable" period. Then we will progress in 20-year intervals. In other words:

• Sep 30, 1902 to Mar 31, 1906
• Sep 30, 1922 to Mar 31, 1926
• Sep 30, 1942 to Mar 31, 1946
• Sep 30, 1962 to Mar 31, 1966
• Sep 30, 1982 to Mar 31, 1986
• Sep 30, 2002 to Mar 31, 2006
• Sep 30, 2022 to Mar 31, 2026
• Etc.

The Historical Record

Let's start with the conclusion which is displayed in Figure 1 using monthly closing price data for the Dow Jones Industrial Average. 

• The first two columns show the start and end dates. 
• The third column shows the cumulative price change for the Dow for the full 42-month period. 

Some things to note:

• Most importantly, note that ALL 6 of these periods showed a significant price gain.
• The average net performance for the Dow during this recurring 42-month period was a gain of +64.1%

The chart below displays the cumulative results of buying and holding the Dow ONLY from Sep 30th of "even" year 2 through Mar 31^st of "even" year 6, from 1899 to the present.

Figure 2 - Cumulative Dow Price performance during the 42-month favorable period - every other decade (1899-2019)

• The cumulative result through 12/31/2019 is a gain of +1,756%

The charts below display each period appearing in the chart above individually

2024 Update: The chart below shows Dow Jones Industrial price action since 2022-09-30.

Summary

Will the period from September 30, 2022, through March 31, 2026, witness a significant price gain by the Dow Jones Industrial Average?

Well, that is the question, isn't it? At the very least, history seems to suggest that investors should give the bullish case every benefit of the doubt during this time period.