Santoli: Don't pretend calendar offers any clarity

Published Mon, May 2 20167:16 AM EDTUpdated Sat, Oct 14 201710:44 AM EDT

History is imploring investors to worry right now. This is the point in the year and the moment in the political cycle when markets have met trouble, we are told by the archivists of financial patterns. But it probably makes sense to listen to these grim tidings with only one ear, treating them like the boilerplate warnings of pharmaceutical ads rather than a firm and scary diagnosis. The annual "sell in May" chatter has become a cacophony of crude statistical argument countered by heavy-handed admonitions against timing the market, yielding far more noise than signal. Yes, most historical market gains have accrued from Halloween through April, and sitting out the summer and early fall meant sidestepping a number of nasty market air pockets. But the past six months didn't give us the promised juicy return, with the Standard & Poor's 500 down slightly since Oct. 31 after sustaining an ugly 12 percent sell-off into February. So should the tide go out now, when it never came in? And what of the fact that returns from May through December are pretty good when the market's up year to date on May 1, as it was (barely) this year? Or — wait — now comes a study from Bespoke Investment Group that says when the S & P 500 is flattish through April, the rest of the year has been unrewarding. Well, sure. But Dana Lyons of J. Lyons Fund Management slices the numbers by years of the election cycle that shows May-October returns in an election year have been the best of the quadrennial "presidential cycle," with an average 4.5 percent gain in the Dow Jones industrial average since 1900. Is all that clear? Read More Strategist: Keep buying dividend stocks for the sideways year ahead While on the subject of purported election effects, some of the shrillest alarms are being sounded over the chances for an anxious, jumpy summer for markets in the home stretch of an "open election" — one at the end of a two-term presidency with both party nominations in play. Strategists from UBS are among those pointing out that stocks tend to struggle from April through the election in such years, in stark contrast with the generally strong record of all election years. Source: UBS Investment Research These numbers don't lie, but are they trustworthy? Well, there have only been four such open elections in the past 50 years, and just 10 since the Dow Jones industrial average was created in 1896. The two most recent were 2008 and 2000, years when markets crashed. Whatever else one believes about current prospects of a crash, does any honest history of 2000 and 2008 place much weight on political uncertainty as a causal factor? The election cycle in general has been a poor guide lately. After the 2014 midterm elections, Wall Street was busy telling investors to bet on a near sure thing: The third year of a presidential term of a two-term presidency had delivered consistently excellent gains. Well, 2015 didn't; the big-cap indexes were flat while the "average stock" fell double digits. Maybe that's because the setup was wrong? As noted here at the time , we didn't get the "typical" lousy performance in year two of the presidential cycle. This shows how contingent these rules of thumb are, and how little resistance they put up to tests of statistical significance. And yet there i