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1987, 1997, 2007… Just How Crash-Prone are Years Ending in 7?

Bad Reputation

Years ending in 7, such as the current year 2017, have a bad reputation among stock market participants. Large price declines tend to occur quite frequently in these years.

Sliding down the steep slope of the cursed year. [PT]

Just think of 1987, the year in which the largest one-day decline in the US stock market in history took place:  the Dow Jones Industrial Average plunged by 22.61 percent in a single trading day. Or recall the year 2007, which marked the beginning of the GFC (“great financial crisis”).

Given that the current year is ending in 7 as well, is there a reason to be concerned, or is the year 7 crash  pattern a myth?

The Pattern of the Dow Jones Industrial Average in the Course of a Decade

Below you can see a chart of the typical pattern of the DJIA in the course of a decade. This is not a standard chart. Instead it shows the average price pattern of the DJIA in the course of a decade since 1897.

The horizontal axis shows the years of the decade, the vertical axis the average performance of the index. Thus one can discern at a glance how the index typically performs in individual years depending on what their last digit happens to be.

 

DJIA, typical pattern in the course of a decade since 1897. Years ending in 7 did tend to be marked by large setbacks on average.

As you can see, in the first half of the decade, i.e. in the years ending in 0 to 4, the DJIA barely rose on average. By contrast, in years ending in 5 (highlighted in yellow above) the performance of the index tended to be particularly strong.

…click on the above link to read the rest of the article…

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