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Markets & Stocks

June: swoon or boom?
It has typically been an up month in election years since '52. But this is no typical election year.
November 29, 2004: 2:47 PM EST
By Mark Gongloff, CNN/Money senior writer

NEW YORK (CNN/Money) - If history is any guide, then June will be a great month for U.S. stocks. Unfortunately, history may not be much of a guide this year.

Presidential election years are typically great years for the stock market. Since 1952, there have only been three down election years: 1960, 1984 and 2000.

It was a very good year ... sometimes
Election years have typically been good for stocks in recent decades, with June most often positive.
YearDow percent change, yearDow percent change, June
Source:Stock Trader's Almanac 2004

And the last seven months of those election years -- the stretch we're about to enter -- were the best months. Since 1952, the market only fell in the June-to-December stretch in 2000, which is understandable; markets loathe uncertainty, and uncertainty was the hallmark of the 2000 contest, which wasn't decided until several months and several court hearings after election night.

Finally, June has been the most consistently positive election-year month, with gains 85 percent of the time since 1952, according to William Livesey, senior technical analyst at CyberTrader, a Charles Schwab (Research) unit. June was a down month in only 1968, 1972 and 1992. The second-best month is October, which has been down five times.

"May is usually the second-worst month of the year, so we often get a little rebound in June, and that's more pronounced during election years," Livesey said.

Certainly, many technical indicators have lately been pointing to a short-term bounce. For example, the ratio of bearish put options to bullish call options on the Chicago Board of Options Exchange has been above 1.0 in nine out of the past 13 days, a more intensely bearish stretch than the period just after Sept. 11, 2001, and just before the market bottom in Oct. 2002.

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That's the kind of number that makes contrarian analysts foam at the mouth, since they assume most investors don't know what they're doing. Excessive bearishness often means markets are about to bounce.

On the other hand, these signals have been flashing red for several days without much of a market reaction and some analysts are getting a little nervous.

"The true historic extremes we saw over the past week or so lent a lot of credence to the likelihood of higher prices over the next 60 to 90 days and beyond," said Jason Goepfert, president and CEO of Sundial Capital Research. "But I am very troubled by the inability of the broader market to rally in the face of these readings."

History doesn't always repeat

What's more, as the brokerage houses say, past performance is no guarantee of future results. And the number of election years since 1952 -- a whopping 13 -- is a teeny sample size, meaning June's good performance in recent history isn't statistically meaningful.

Stretch the time period back to 1900, and August tends to be a better month than June in election years, according to Sam Burns, research analyst at Ned Davis Research.

Presidential Election
Charles Schwab Corporation

"Even then, you're only talking about 26 [election years], which is not that many, statistically speaking," Burns said. "We don't rely on these historical averages by any means."

Burns agreed that stocks have tended to do better in the last seven months of election years, but he also noted that performance worsens when incumbents lose, thanks again to the market's aversion to uncertainty.

If President Bush's poll numbers continue to slide, as they've been doing lately, then stock returns could suffer.

In the end, the market's performance will, as always, be decided by stuff that's actually going on -- the strength of corporate earnings and the economy, the price of oil, developments in Iraq, etc. -- rather than by historical trends.

Unfortunately, much of the stuff that's going on right now would seem to call for markets to keep trading in the ho-hum range they've seen in recent weeks.

"There could be just a lot back and forth and not a lot of net progress," Burns said, "and that wouldn't be all that unusual in an election year, particularly if the incumbent party does not get re-elected."

Then again, things sometimes go wrong even when the incumbent party wins -- Reagan's re-election in 1984 was accompanied by a 3.7-percent decline in the Dow.  Top of page

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