The Groundhog Day Indicator
Wednesday, February 2, 2011 at 07:57AM It's hard to have a positive attitude when much of the country is in the midst of a major snow/sleet/ice/freezing rain/rain storm, but today's events in Punxsutawney, PA should make both those who are sick of the cold and the bulls happy. This morning, the world famous groundhog Phil did not see his shadow, which means that Spring is on the way.
While Phil's accuracy at predicting the weather may be a little suspect, he does have a knack for predicting rallies in the stock market. Yes, believe it or not there is a Groundhog Day Indicator! At least there is now. Going all the way back to 1944, stock market returns have done considerably better for the rest of winter when Phil does not see his shadow.
In the table below, we highlight the average return of the S&P 500 from Groundhog Day through the first day of Spring in years when Phil sees his shadow versus years when he doesn't see his shadow. As shown, Phil usually sees his shadow. Since 1944, he has seen his shadow in 56 out of 67 years, and in those years the S&P 500 averages a return of 0.16% with positive returns 51.8% of the time. However, in those years where Phil does not see his shadow, the S&P 500 averages a return of 4.06% with positive returns 81.8% of the time! So if all the snow and rain has you feeling lousy, take heart in the fact that Spring is on the way, and the market is heading higher...at least according to Phil. And if spring never comes or the market goes down, remember that this is a groundhog we're talking about!
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Reader Comments (1)
The mean reversion of Groundhog Day is a blog post that connects Phil and finance in a different manner.