“It’s actually that simple,” says Mary Ann Bartels, technical research analyst at Bank of America Merrill Lynch. “You go through the whole decade and just average up the performance of the market every year. Traditionally the ‘zero’ year and the ‘one’ year are bad years. The beginning of the decade starts out very slow.”
For years ending in one, the average return on the Standard & Poor’s 500 has been a loss of 0.9 percent since 1931. It is the worst performer of the 10 digits that span the course of a decade.
Bartels isn’t convinced the market is following a Decennial Pattern this year but is watching for support levels to be breached indicating the S&P is trending in that direction.
The best performing year, though, has ended in five. In fact, there has never been a year ending in five since the 1935 that has produced a negative result.
“As we progress through the decade the market gets better in the back end,” Bartels says.
So what does the number in which a year ends have to do with stock performance?
“No one has really written anything definitively but it seems to be that we get so hepped up at the back of the decade,” Bartels says.
Of course, chart-watching, as with history, does not always repeat itself. Those betting on the Decennial Pattern got burned in 2010, when past performance would have indicated a 0.3 percent drop but instead produced a nearly 13 percent gain.
“If it didn’t work last year, why should it work this year?” says Sam Stovall, chief equity strategist at Standard & Poor’s.
Bartels thinks the reason is that the market was under undue influence last year—primarily from a big dose of quantitative easing from the Federal Reserve that helped goose the markets but ended in June. The S&P 500 has lost more than 5 percent since the end of the second leg of QE, or QE2.