Conditions are favorable for a strong U.S. stock market performance in the fourth quarter of 2014 and into first half of 2015 once the current corrective selling has abated. Here’s why.
Since 1950, November and December have been the third and first best months for stocks. The recent decline in stocks has the markets well positioned to deliver gains in the last two month of the year.
The quarter leading up to a midterm election tends to be a poor one for stocks, but the next three quarters have delivered the best returns of a presidential term, with the second term of an incumbent president the strongest of all.
This period from November to April has historically:
- delivered 15% gains and the market
- moved higher 94% of the time and
- 100% of the time for an incumbent president.
Stocks are poised to rally in Q4 based on a corrective trend reversal. The dollar is overbought and the three-month rally ended this week.
Major stock indexes are either oversold or close to being oversold. The current selling has not yet ended though, so a bottom could still be days or weeks away.
Commodities and foreign markets are likely to rally on a weaker U.S. dollar, but longer term the U.S. dollar appears ready to begin a move higher, based on economic fundamentals and a very strong repeating pattern in the chart, which would be unfavorable for most non-U.S. assets heading into 2015 and beyond.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
* http://seekingalpha.com/article/2554875-dollar-and-presidential-cycles-lining-up-for-a-rally (© 2014 Seeking Alpha)
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