Welcome To the Weak Spot of the 4-Year Cycle
Unfortunately, the market entered the weak spot of the
4-Year Election Cycle this month with an array of headwinds from the Fed,
Inflation, the Ukraine War and now most concerning the China’s
unprecedented Covid lockdowns and testing. This situation has the potential
to generate the greatest impact on the global economy as it could severely restrict
the flow of essential raw materials and goods around the world.
The market is also suffering from the usual disappointments,
unmet promises and miscues from the new incumbent administration that has
historically restricted market gains through Q2-Q3 of the midterm election – the
period we’ve only just begun. As you can see in the chart here Q2-Q3 are the weakest
two quarters of the 4-Year Cycle, averaging losses of -1.2% for DJIA and -1.5%
for S&P 500 since 1949, and -5.0% for NASDAQ since 1971.
The good news is that this weak spot immediately proceeds
the “Sweet Spot” of the 4-Year Cycle, which runs from Q4 of the Midterm Year through
Q2 of the Pre-Election Year, averaging gains of 19.3% for DJIA and 20.0% for
S&P 500 since 1949, and 29.3% for NASDAQ since 1971.
Caution is definitely in order over the next “Worst Six
Months.” We already issued our Seasonal Best Six Months MACD Sell
Signal on April 7. But be ready to pounce on the perennial Midterm year
bottom that is most likely to hit sometime over the next six months.