By Mark Hulbert
Dow history shows that the odds favor bullish investors – regardless of market conditions
There’s a 68% probability that the U.S. stock market will rise in the second half of 2024. This is based on the 128 calendar years since the Dow Jones Industrial Average DJIA was created in 1896. In 87 of those years, the Dow rose over the second half of the year – or 68% of the time.
Some of you may wonder if the probability of a second-half gain increases if, as is the case this year, the stock market rises in the first half of the year or inflation is trending down. The answer, as far as I can tell, is “no.” I could find no objectively-defined subset of years in which the stock market’s second-half probability, at the 95% confidence level, was higher than 68%.
A difference that makes no difference is no difference
% of time since 1897 in which DJIA rose in second half of year
Source: Hulbert Ratings
To illustrate, consider those years since 1897 in which the stock market, as will almost certainly be the case this year, rose for the first half of the year; there were a total of 78 such years. In the second half of those years, the Dow rose 57 times – 73% of the time. Though you might think that the increase in probability from 68% to 73% is significant, it is not at the 95% confidence level.
Market efficiency
These results are precisely what we would expect, given that the stock market is so efficient. A hallmark of such efficiency is that markets “base their level on anticipated future returns, and do not include history in the calculation,” Lawrence Tint told me in an inter- view. Tint is the former U.S. CEO of Barclays Global Investors, the organization that created iShares (now part of Blackrock).
Investors who think otherwise are guilty of what’s known as the “gamblers fallacy.” This fallacy is perhaps most easily detected when flipping a coin. After several heads in a row, most of us believe there’s an above-average chance that the next flip will come up tails. In fact, of course, the probabilities of heads or tails are the same with each flip completely independent of what came before. The same is largely, or almost completely, true of the stock market.
The bottom line? There’s a two-out-of-three chance that the stock market will rise in the second half of 2024. That’s good news, but this good news derives from the stock market’s upward bias rather than anything unique about this year in particular.
Mark Hulbert is a regular contributor to MarketWatch.
His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected]
