Decade Cycle

The stock market appears to follow a 10-year cycle. During the first half of the decade equity prices on average do not increase, however in the second half they clearly do. In addition, U.S. equities have demonstrated very good performance in years ending with the number 5 (e.g. 1995 or 2005). Their average profit amounted to 30 %. That equals 40% of the average profit for the entire decade! On the other hand with years ending in 7 there were often price slumps.

Though reasons are not clear, it could be knowledge of the calendar itself that triggers the behavior of the economy or influences monetary policy (similar to when one resolves to do something for the New Year.) There is also evidence that sweeping changes in the market often have to do with the change of the decade (e.g. Gold’s high at the end of the 1970s, the Nikkei’s peak at the end of the 1980s and the NASDAQ’s high at the end of the 1990s). However, overall, the basis for the decade cycle is shaky.

The decade-cycle chart of the Dow Jones shows the average 10-year trend of the index over the last more than 100 years.

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