Reagan’s Bears

Continuing a bad tradition

Short-lived rallies aside, the past few years have not been good to most owners of common stocks, and 1981 was no exception. Mauled by high interest rates, uncertainty over Reaganomics and nervousness over recession, stock prices failed to catch fire after climbing to the year’s high back in April. With only a few days of trading left this year, the Dow Jones industrial average, the most widely watched market indicator, stands at 873, down 91 points from the 964 closing on the last day of 1980.

That is hardly heartwarming. But neither is it cause for depression or panic selling, says Dow Watcher and Market Analyst William M. LeFevre, 54, of the New York investment firm of Purcell, Graham & Co. The market, he says, is behaving as it almost always has during the first year of a Republican Administration.

LeFevre is one of a handful of Wall Street gnomes who try to discover a correlation between events and the stock market. In 1974 he began tracking the performance of the 30 Dow industrial stocks through the first year of Republican and Democratic Administrations going back to William McKinley in 1901. LeFevre discovered that the Dow rose during the period for every Democratic President from the fourth Inaugural of Franklin Roosevelt to Lyndon Johnson. The only exception in recent times was Jimmy Carter’s first year, 1977, when the indicator dropped by 17%.

But for Republican Presidents, the opposite is true. The Dow fell an average 12.4% in the twelve months after the Inaugurations of Herbert Hoover, Dwight D. Eisenhower and Richard Nixon. It is down in 1981 too, by about 9%.

LeFevre also found trends that are more encouraging for Republicans after the first year of new Administrations. Prices for stocks in the Dow industrial average go up smartly: about 13% in the second year, 20% in the third and 6% in the fourth. LeFevre explains that this is because Republican Presidents sensitive to looming congressional elections traditionally stimulate the economy at about the time their second year in office starts. Says he: “It begins to dawn on the occupant of the White House that unless he gets the voters in a good mood, he is going to lose a lot of seats in Congress.”

If history holds true for this Administration, says LeFevre, stock prices should now begin rising in a fairly steady 32-month rally. They should then peak in August of 1984, when the Dow will reach 1345.61, almost 300 points above its all-time high of 1051, set in January 1973.

Investors will not have to wait as long to see if another of LeFevre’s theories proves correct. This is his Super Bowl indicator. After 13 of 15 contests since 1967, the market has gone up the year in which the National Football Conference team won the Super Bowl, and down when the American Football Conference team was the victor. So the best gauge—in chartist terms—for Wall Street activity in 1982 is Super Bowl XVI, which will be held on Jan. 24 in the Silverdome in Pontiac, Mich. Watch closely. Then buy or sell.