The following is an excerpt from Mark Hulbert | October 15, 2016 | marketwatch.com |
CHAPEL HILL, N.C. — Good news: The stock market is dropping. The Dow Jones Industrial Average, while ending Thursday well off its early triple-digit decline, fell for the sixth time in nine days to close at its lowest level in 2½ weeks.
Why is that good news?
Because by dropping in October, the stock market creates the preconditions for a significant rally through the end of the year. This year appears to be quite closely following at least the beginnings of that script.
How big a rally? The Dow DJIA, +0.22% over the last 120 years has gained an average of 6.8% from its lowest October close through Dec. 31. On an annualized basis, that’s equivalent to nearly 40%, or four times the stock market’s long-term average.
To be sure, the exact day of October’s low is different every year, and is only known after the fact. It might be, for example, that the low for the current October has already been registered; but it’s also possible that it is yet to come. So it’s unrealistic to assume that investors could have captured the entire amount of the 6.8% average return from October’s low.
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