It has been a strange year for the markets.
The S&P 500 is down 11.75% year-to-date, the Nasdaq shed 18.6% — largely affected by the war in Ukraine, high oil and energy prices, and supply chain disruptions caused by COVID-19 lockdowns.
Geopolitical and macro aside, Carson Group Chief Market Strategist Ryan Detrick thinks we should’ve seen the drawdowns coming for a different reason: history.
“The weakest scenario [in the markets] is the second year in the presidential cycle under a new president,” Detrick said live on Benzinga’s PreMarket Prep Friday morning.
According to Detrick’s data stemming back to 1950, the S&P 500’s performance in the second year of a newly elected president is just 2.4%, followed by 20.1% in the third year.
The Midterm: President Joe Biden just entered the third quarter of his second-year term as a new president. It also happens to be a midterm year. Zooming in on the S&P 500’s second quarter performance during a midterm, it has historically lost 2.1%
“Midterm years usually aren’t that great,” he said. “The second quarter of a midterm year, the one we just had, the S&P lost 16.78%. That’s the worst one out of the 16 quarters.”
The good news comes in the third and fourth quarters in the second year of the presidential cycle. The S&P 500 has historically gained 0.5%, and 6.6%, respectively.
The first half of the year in the international markets was the most brutal in decades.
Few markets escaped the months-long slump that was spurred by accelerating inflation and increasing interest rates. Through June 30, the S&P 500 plummeted 21%, putting the index into bear market territory. Detrick offered some insight on this.
“We just had the 150th day of the year — one of the worst starts to the year. What I think is fascinating though, look at how many of those years were midterm years,” Detrick said. “The last six times we had the worst start to the year ever, they were midterm years.”
Market Breadth: This term describes the number of stocks that are involved in a specific index shift. An index like the S&P 500 may be gaining while more than half the equities in the index are declining because a small number of stocks are making big gains.
That is not the current scenario in the S&P 500.
“Eighty percent of stocks in the S&P just cracked above their 50-day moving average,” he said. “When you have that much breadth, normally stocks will continue to do pretty well. When you get up to 90% of stocks above the 50-day moving average, the returns on the year are well over 20% on average. A little more breadth can be a real strong signal.”
Jobs: The number of jobs created in the U.S. increased in July across almost all industries, bringing employment levels back to pre-pandemic levels.
Employers added 528,000 jobs on a seasonally adjusted basis, more than twice consensus projections, according to figures released by the Labor Department last week.
“When you have over 3 million jobs created in one year, like the year we’re in now — that year has never been in a recession. The jobs market to us says that we are likely not in a recession, we think the upward trend is alive and well,” he said.
You can watch the entire interview, here.
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