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CHAPEL HILL, N.C. — Might the upcoming total eclipse of the sun coincide with the bull market’s top?
I know, I know—many of you are wondering why this question is worth even asking. So before I tackle the question, you should know that there have been several academic studies that have found stock markets are indeed affected by astronomical (if not astrological) phenomena.
Here’s a quick sampling:
•“Good Day Sunshine: Stock Returns and the Weather” was conducted by David Hirshleifer of the University of California, Irvine, and Tyler Shumway of the University of Michigan. The researchers found that a country’s stock market performs significantly better on days when the sun is shining in the city of its leading stock exchange.
•“Are Investors Moonstruck? Lunar Phase and Stock Returns” was conducted by Lu Zheng of the University of California, Irvine; Kathy Yuan of the London School of Economics; and Qiaoquia Zhu of the Australian National University. The researchers found that “stock returns are lower on the days around a full moon than on the days around a new moon.”
•“Winter Blues: A SAD Market Cycle” was conducted by Mark Kamstra of York University; Lisa Kramer of the University of Toronto, and Maurice Levi of the University of British Columbia. They found that stock market returns in countries around the world are “significantly related to the amount of daylight through the fall and winter.”
Given the findings of these and other studies, I think even the most skeptical of you will agree that the proper response is to be rigorously empirical in dealing with the possibility that the upcoming solar eclipse’s ripple effects will show up in the S&P 500 SPX, +0.32% the Dow Jones Industrial Average DJIA, +0.44% and other major averages.
My first step was to try correlating solar eclipses with major market turning points. I focused only on total solar eclipses as opposed to partial ones, and furthermore on just those that were visible within the United States. There were 13 that met the criteria. For stock-market turning points, I relied on the bull and bear market calendar maintained by Ned Davis Research.
I found little correlation. On no occasion did a total solar eclipse visible in the U.S. occur on the day of a major market turning point. The closest was the market bottom on Sept. 7, 1932, which came just a week following the eclipse on Aug. 31 of that year. But other eclipses haven’t occurred anywhere near as close to turning points. The eclipse on Jan. 24, 1925, for example, came in the middle of the great bull market of the 1920s; no major trend change was on even the distant horizon.
On average since 1900, 10 months have separated major market turning points and total solar eclipses that were visible within the U.S. But there was a huge range: The standard deviation of this spread between turning points and eclipses was 6.6 months, which means that—assuming the future is like the past—we can at the 95% confidence level say that the Aug. 21 eclipse will be followed by a bull market top within 23 months.
Doesn’t tell you much, does it?
Might it be that even though the major trend doesn’t change when there is a solar eclipse, the stock market performs better or worse than average? To check that possibility, I measured the Dow Jones Industrial Average’s returns over the week, month, quarter and year before and subsequent to each eclipse. Once again I came up empty.
That’s because there was a fairly even distribution between eclipses for which the stock market was followed by below-average returns and those for which there was above-average performance. The same was true for returns before those eclipses. My PC’s statistical software was unable to detect any unusual pattern in any of these returns.
The bottom line? It’s difficult to conclude from the history of past eclipses that the Aug. 21 eclipse this year will end up being particularly momentous for the stock market.
That doesn’t mean it won’t be momentous in other ways, however, according to Arch Crawford, editor of the Crawford Perspectives, who bases his market timing advice on both technical analysis and “planetary cycles.” In the most recent issue of his newsletter, he specifically mentions the Aug. 1, 2008, solar eclipse that was visible in Russia. Six days later that country went to war with Georgia, the former constituent republic of the U.S.S.R.
Crawford writes that, in the wake of the Aug. 21 eclipse this year, “hostile reactions will be immediate. Like it or not, historic events will ensue around this time, and most certainly involve the United States!”
He adds, however, that this hostility won’t spell the end of the bull market. He instead expects “a higher high after some further corrective action during this summer, perhaps around the December-January time frame.”