Markets "in a Nutshell" for November 21, 2017Nov 21, 2017
We write below of the unlucky “seven year streak” for stocks. Which year saw the biggest decline for the Dow in the peak to trough August-November time period?
- a) 1907
- b) 1987
- c) 2007
- d) 1937
Answer to quiz below...
Investment Week at a Glance
Stocks finished mixed for the week. The Dow Jones Industrial Average was down 0.3%, the S&P 500 dropped 0.1%, the New York Stock Exchange Composite (2,000 stocks) was down 0.1% and the average investors index (Value Line Index) was up 0.9%. Foreign stocks (DJ Global ex U.S.) were down 0.3%. Bond prices were flat for the week with the 10-year U.S. Treasury paying an annual interest rate of 2.34%. (Data sources: Barron’s Financial, Wall Street Journal)
Are you an investor in the “21 Club?”
The 11/17/17 USA Today reports that a small group of 21 stocks, so-called “the 21 Club”, has been the main driver of stock performance in the U.S. this year. Made up mostly of technology companies, the 21 club contains such names as Apple, Facebook, Amazon, Alphabet (formerly Google), MasterCard, McDonald’s and Berkshire Hathaway (Warren Buffet’s company). These 21 stocks have accounted for over half of the performance of the S&P 500 stock index this year. Past bull market tops have often (but not always) been defined by a small number of stocks driving performance. In the late 60’s it was the “nifty fifty” stocks (at that time cutting edge tech leaders such as IBM, Eastman Kodak and Xerox) and the late 90’s saw Microsoft, Cisco Systems, as well as the dotcoms.
The “21 Club” part II
As the 21 Club stocks are part of the S&P 500, it is not surprising to see those stocks spiraling upward. Since 2007, investors have poured $1.4 trillion into U.S. index stock funds and ETF’s while pulling out $1.3 trillion from funds and ETF’s that are run by portfolio managers. While some see danger in the numbers, Todd Sohn, analyst at Strategas Research Partners, doesn’t see a problem. Sohn says the 10 biggest stocks in the S&P 500 account for only 20% of the index vs. a bigger 27% in 2000.
U.S. stocks to break “unlucky –seven” streak
If stocks end up positive at the end of November, it will break a 130 year streak. The streak going back to 1897 has stocks declining in value from peak to trough in every year ending in “seven” (so 1897, 1907, 1917, and so on). Looking back, years ending in seven have produced some of the more infamous fall market drops. The 1927 and 1987 market crashes and the 1907 and 2007 financial crisis (which precipitated market crashes) are two sets of memorable “seven” year drops. The Dow is up 7% since August so it looks like the streak shall be broken!
d) 1937 during the Great Depression years. The Dow dropped 40%.