Cycles Have a History, You Should Read About It
Stock-Markets / Cycles Analysis Aug 29, 2014 - 03:21 PM GMTBy: Harry_Dent
Last year, I was reading a sidebar in Barron’s where ex-fund manager and PIMCO director Paul McCulley was talking about a stock market peak later that year… at the same time sunspot cycles were forecast to peak.
This wasn’t the first time I’d heard respected analysts connect market activity to sunspot activity. Charles Nenner, a prominent cycle analyst believes there’s a plausible connection. So does Richard Mogey, founder of the Foundation for the Study of Cycles (and a speaker at our October IES Conference in Miami).
With McCulley joining the growing ranks of believers, it got me thinking… is there something to this theory? Do sunspot cycles affect the stock markets in any way? (Crazy, I know… but first, I’m no stranger to being called crazy and second, success isn’t found inside the box.)
As you know, NASA tracks and projects sunspot activity — that makes it more projectable. It’s discovered that movement on the sun’s surface ebbs and flows in cycles (just like everything else in life). As the cycle unfolds, the earth is bombarded by more or less solar radiation. The high cycles can knock out satellites and communication systems. They also raise temperatures and rainfall. (I explain this concept more in detail in my latest book, The Demographic Cliff — read a preview on sunspot cycles and activity from Google books.)
Of course, rising and falling energy cycles certainly could have some impact on human behavior…
What was more interesting to me though was that this sunspot cycle is reputed to peak every 11 years — that’s why I first rejected it as I saw no correlations on 11-year cycles. So I went back and documented the peaks back over a hundred years only to discover that the real average is 10.3 years.
That’s when I got really interested.
You see, there’s another cycle we follow closely, one first documented by Ned Davis. It actually has been one of the critical cycles in our research for decades. It’s called the Decennial Cycle and it tends to peak around the end of each decade and bottom in the second year of the next decade. And in the last cycle, there was a peak in early 2000 and a bottom in late 2002, right on cue.
The cycle then remains sideways to moderately up for stocks until the middle of the decade (i.e. late 2004 or late 2014), and then rises the most sharply again into the end of the decade.
Whether such cycles bottom earlier or later in the first few years of every decade has been related to when the four-year presidential cycle bottoms. That’s why we had major bottoms in 1962, 1970, 1982, 1990 and 2002.
These two cycles together — the 10-year Decennial Cycle and the four-year Presidential Cycle — created our best intermediate patterns for decades. The last time these two cycles should have bottomed together was late 2010 and a major crash and recession would have been expected more broadly between 2010 and 2012. But that didn’t happen…
When the economy weakened in 2010 to near zero growth, the Fed stepped in with QE2. It did it again in mid- to late 2012 forward with two phases of QE3. All of which, I assumed at first, threw the otherwise reliable cycles out of kilter.
Or is there another explanation…?
As I said before, the average sunspot cycle is 10 years. The last top was in early 2000… right at the top of the tech stock bubble. But that sunspot cycle bottomed years later than normal, and would you believe it?! The recent stock market crash bottomed in early 2009… at exactly the same time the sunspot cycle bottomed.
NASA predicted a later than usual sunspot cycle to peak around mid-to-late 2013. And would you believe it?! That’s when our analysis of stock patterns suggested back then that we could see a top in the markets. We thought the Decennial Cycle failed for the first time in 50 years, but if sunspots are the cause, we just got an eccentric cycle that pointed down from late 2013 into late 2019, when our Spending Wave and Geopolitical Cycles also pointed down at the same time.
Subsequently, months of research into this sunspot cycle has shown that 88% of the major crashes, recessions, depressions and financial crises came in the down cycle, and most of the rest came close on either side. This is clearly no coincidence!
But most important, this cycle peaked a little later than the scientists forecast, in February 2014.
Bottom line: this cycle, the most powerful I have discovered since the Spending Wave, looks like it peaked this past February and points down into around late 2019 or early 2020. The worst crashes come in the first 2.5 years after a peak just as Ned Davis’ Decennial Cycle suggested — so the greatest should be coming between late 2014 and late 2016.
Harry
Follow me on Twitter @HarryDentjr
Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.
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