One of the elements studied by the more sophisticated investors, and technical analysts in particular, is cycles because looking for patterns is a core research activity.
Most investors are familiar with the Kondratieff cycle, the Schumpeter gale and Elliott Waves and in 2013 Kerry Balenthiran published a book in Great Britain which offered the new perspective of, and this was the title of the book, The 17.6 Year Stock Market Cycle.
Kerry Balenthiran
Mr Balenthiran studied mathematics at the University of Warwick. He later qualified as a chartered accountant with Arthur Anderson, and now works as a consultant within financial services. As a mathematician he studied the cyclical nature of stock market booms and busts and the book is the sum of his research.
17.6 years
Balenthiran has studied stock market data going back 100 years and claims to have discovered a regular 17.6 year stock market cycle. He is not the first researcher to have pitched the length of a stock market cycle between 17 and 18 years. Jim Rogers, a legendary investor who co-founded the Quantum Fund and retired at age thirty-seven, wrote in his book Hot Commodities: “It looks as if God himself was a trader who enjoyed playing the stock market for 18 years or so and then switched to futures, until he got bored again after another 18 years or so and went back into the stock market.”
Warren Buffet tends to have more to say on stocks than markets but wrote in Fortune magazine in 1999: “I think it’s hard to come up with a persuasive case that equities will over the next 17 years match the returns in the past 17.” We will have to wait until 2016 for the complete answer but the FTSE 100 has advanced 12% from 1st January 1999 to 1st January 2015 compared with 806% from 1st January 1982 to 1st January 1999. The figures for the Dow Jones Industrial Average (Dow Jones) are 1,050% before 1999 and 94% since then. These statistics are taken from Sharescope and show he was right.
So What?
Balenthiran states that we are in a secular bear market that will become a bull market in 2018. He makes a good case and breaks down the 17.6 years into segments of cyclical bull markets of 4.4 years and cyclical bear markets of 2.2 years.
This time around the markets are not following his lead. The Dow Jones has risen with few pauses by 72% from 9 March 2009 to 31 March 2015. The FTSE 100 has done better with a rise of 93% over the same period, although it has not been such a smooth ride. The key question for most investors is: “When is the next correction?” The answer is “probably soon” or at least within the next two years and probably before 2018.
Disclaimer: This material is published by Raymond James Investment Services Limited (RJIS) for information purposes only and should not be regarded as providing any specific advice. Opinions constitute our judgement of this date and are subject to change without warning.