Something tells me we’re not in Kansas anymore. In the blink of an eye, the sweep of a second, and one night's sleep, we’ve slipped into the ‘20s. Gone are the aughts and the ‘10s. It’s hard to believe 1990 was a full thirty years ago! Like the 1920’s, let’s hope the next decade brings us abundance, growth, and maybe even a little decadence (without the correction that ended that decade). So far this year, the markets have remained exuberant with the momentum carrying on from last year. Despite the bombing of an Iranian general yesterday, the markets look to close the week about where they started.
While we’re on the subject of a new decade, this year happens to be a presidential election year. I thought we could look at how the market has performed in the fourth year of a presidency, understanding that past performance is not a guarantee of future returns. If you examine the return of the S&P 500 Index for each of the 23 election years since 1928, you’ll see that in only four of them was it negative. One professor of economics from Pepperdine, Marshall Nickles, wrote a paper in which he presented data showing that a profitable strategy would be to invest on October 1 of the second year of a presidential term and sell on December 31 of the fourth year. Another prominent researcher, Yale Hirsch, has concluded that the most profitable year of a presidential cycle is the third, followed in order by the fourth, second, and first. This year proved his theory. Let’s hope next year follows suit.
In other news, hedge funds had a dismal year. Once the darlings of Wall Street, the hedge fund industry is about to close a year that saw more fund closures than launches for the fifth consecutive year. More than 4,000 funds have liquidated in the last five years, according to data from Hedge Fund Research. Investors pulled $81.5 billion from hedge funds this year through November, more than twice the amount for all of 2018. To a large extent, this has occurred because returns haven’t kept up with the stock market this year. The Bloomberg Equity Hedge Fund Index rose 10% through November versus the S&P 500’s 28% climb.
Over the coming decade, one economic indicator to keep an eye on is population growth. We learned this week that the growth of the U.S. population during the past year ranked the slowest in 100 years as the number of births declined, the number of deaths increased, and international migration slowed, according to the U.S. Census Bureau. U.S. population rose 0.48% since July 2018 to 328.2 million with growth slowing each year since 2015. That is the slowest pace since 1917 and 1918, when the U.S. entered WWI, according to the Brookings Institute. It is worth keeping an eye on this statistic because population trends are important on a macro basis. In a nutshell, population growth and productivity improvements are key to economic growth. One has only to look at Japan to see the consequences of a shrinking population over the past forty years.
In closing, I have a job for you. If you happen to have an advanced degree in economics, the Bank of Canada is listening. The Bank of Canada appears to be looking to fill a position for the head of Canada’s central bank. Executive search-firm Boyden published the job posting. Among the requirements: “As an exceptionally well-qualified candidate, you have unquestioned technical competence in monetary policy, and, more broadly, macroeconomics, coupled with a highly developed understanding of the financial sector – both institutions and markets – domestic and international.” The only non-negotiable requirement is that you be a Canadian citizen. For the right price it could be a good gig. Now you know.
Bruce J. Mason, MBA