The WSJ's Kelly Evans reports on how rare it is for the market to suffer losses in 3rd years of the term - please note, we could have a massive rally still to come in the next 3 months to make the trend continue. ;)
- So much for the third-year rally. One reason Wall Street was so bullish on stocks going into 2011: This is the third year of President Barack Obama's term. Typically, "third years" are great for stocks. Since 1962, the S&P 500-stock index has on average gained 19% in the third year of a presidency, according to Birinyi Associates.
- Going back further, GMO's Jeremy Grantham noted last fall that in only one of 19 such post-World War II periods have stocks ended down for the year. As he put it then, "Who wants to bet on the 20th being different this time?"
- Well, 2011 is different all right. The S&P 500 is down 10% year to date.
- That isn't because the typical drivers of the third-year rally, fiscal and monetary stimulus, aren't in place. Rather, it is because they have been trumped by the severity of this economic malaise. That doesn't bode well for 2012.
- Even if President Obama's proposed "American Jobs Act" were to pass in its entirety, it would only move fiscal policy from being a 1.25-point drag on GDP next year to being roughly neutral, according to Goldman Sachs. In reality, a watered-down version is more likely.
- Of course, the economy could somehow strengthen on its own. But hoping for a miracle isn't much of an investment strategy.