Groundhog Day is a centuries old tradition that predicts an early spring or a long winter. In the U.S., our seasonal forecast is provided by the beloved groundhog, Punxsutawney Phil.
While Phil’s credentials as a seasonal forecaster are well established, we wondered if he has insights into any other important aspects of our lives – like the stock market. Our analysts dug into this topic, and you might be surprised by what our research revealed.
What does Punxsutawney Phil’s shadow say about the stock market?
Each year on February 2nd, people from across the nation turn their attention to Punxsutawney, Pennsylvania to watch Phil emerge from his burrow. This year, Phil didn’t see his shadow and viewers began preparing for an early spring. Our research shows they may also need to prepare for stock growth.
A “No Shadow” Groundhog Day Suggests Sunny Results for Stocks
Our team analyzed stock market data going all the way back to 1928 – the year before the Great Depression. There have been 18 years that Phil didn’t see his shadow and these years have seen particularly sunny stock market results.
The S&P 500 has risen an average of 0.45% in the week following a “no shadow” Groundhog Day. These upbeat results have continued throughout the year and the index has gained an average of 15.25% by the next Groundhog Day.
A “Shadow” Groundhog Day Suggests Gloomy Stock Performance
A “shadow” Groundhog Day is much more common – occurring 77 times since 1928. Our research shows that these years have seen underwhelming results in the stock market. In the week following a “shadow” Groundhog Day, the S&P 500 fell by an average of 0.13%. The index has historically recovered these losses for a subdued annual gain of 6.21%.
Should you trust Punxsutawney Phil’s stock predictions?
Despite what we are sure are his best efforts, Phil has only correctly predicted the weather 30% of the time over the past ten years. With this track record in mind, he may not be the most reliable source of information for your spring travel plans or your stock portfolio.
This year, Phil predicted an early spring and – according to our calculations – a strong year for stocks. To Phil’s credit, the S&P 500 closed above 5,000 for the first time in history just a week after Groundhog Day.
While there has certainly been evidence to support a strong year for stocks, other data paints a less rosy picture. One of these data points is the S&P 500 overbought / oversold [OBOS] reading which was 120% the first week of February and suggests that stocks are overbought.
The S&P 500 has only ended a week with a reading above 120% three times in the past forty years – February 1985, February 1991, and January 2018. This historically high reading is troubling, but not a death knell for stocks. In fact, the S&P 500 returned over 30% in both 1985 and 1991 despite the overbought signals.
Whether Phil is correct about this year’s weather or stock market performance remains to be seen. Like every other year, we will have to wait and see just how much faith we should put in a groundhog!
Don’t Trust Phil with Your Finances. Contact Meld to Review Your Portfolio.
While our favorite groundhog has had some success in predicting stock market outcomes, it would be unwise to overhaul your portfolio based on the shadow of a woodchuck! Instead, contact the experienced team of tax, legal, and investment professionals at Meld Financial.
In a single meeting, we will develop your Financial Fingerprint® – a comprehensive wealth management plan that functions as a blueprint for retirement success. Our team has spent four decades helping clients achieve their financial goals and we can answer your most pressing questions about saving, investments, and maximizing retirement benefits from Social Security and Medicare.
To learn more and get started with Financial Fingerprint®, contact us today.
