Presidential First Year and Market Performance

Not to pick on Kenneth Fisher, but lets play an analytical game: How many reasoning errors can you find in this article from Fisher in this month’s Fortune:

"Last month I promised to explain why I expect stocks to be up 25% this year. Well, they sure haven’t started out robustly. But I’m not throwing out my rose-tinted glasses. My reasoning: First, forecasters have a very tight and strong consensus for low-single-digit stock returns this year, yet historically the consensus has almost always been wrong.

So stock returns should be either into double digits or else negative. Now, the first year of a President’s term has almost always been sort of 50-50, either negative or up a lot–nothing in between. Since I don’t expect a negative year, I expect the market to go up a lot.

Next, positive first years of Presidents’ terms average 28%. The numbers for second-term Presidents (11 cases since 1900) are also blessed, with 64% positive years (see chart) and those years averaging a 24% gain. Third, the inverse of the market’s P/E–that is, the earnings yield–is now higher than ten-year bond rates in every important country. This is the case for the first time in decades. Stocks are cheap globally, just when people think they aren’t."


It’s a Beautiful World
Kenneth L. Fisher,
Fortune, 02.28.05, 12:00 AM ET

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