Dow Jones Industrials – 2009 a typical year (following a 33% drop the prior year)?

Just a quick post concerning the performance of the Dow Jones Industrial Average.  Downloading the data from Yahoo! historical data, I grouped the performance in octiles (the data goes back to 10/1928, so each octile has about 10 years) based on the prior year’s year over year change.  I looked at the price at the end of January, March, June, September and year end.

Prior Year jan mar jun sep y/y y/y gain range
-53% to -17% 0.70% -5.06% 3.12% 10.93% 17.01% -53% to 64%
-15% to -6% 0.24% -0.92% -4.37% -0.75% 6.21% -17% to 34%
-4% to 2% 1.20% 4.11% 7.41% 9.06% 14.69% -13% to 44%
2% to 8% 0.26% -1.73% 3.92% 6.42% 9.92% -34% to 39%
8% to 15% 1.13% 0.74% 0.59% 4.42% 9.65% -19% to 27%
15% to 20% -0.23% 1.63% 2.20% 7.44% 5.35% -17% to 25%
20% to 27% 0.15% 2.10% 2.76% -3.13% 2.26% -33% to 23%
27% to 64% 3.72% 3.45% 10.27% 14.28% 17.86% -8% to 26%
2008 (-33.84%) -8.84% -13.30% -3.75% 10.66% 18.82%

graphically (1 – 5 in the graph below correspond to month end Jan, Mar, Jun, Sep, Dec).

The values in the table are median values for the octile, and you can see by the last column in the table (which is not in the graph) there is a wide variation (at least year to year); however, 2009 was a somewhat typical (!) year when the prior year was down between -17 and -53%. The data is a little tainted since 2008 is included in that row (one of 10 years). The standard deviation for each quarter (excluding the top row which has standard deviation of twice the rest of the data) is 6% for March, 10% for June, 13% for September, and 15% for December, rather wide ranges.

If 2010 is typical for 15-20% prior year, then we should see down slightly at the end of January (+/- 6%), up slightly at the end of March & June (+/- 12%), up a bit more in at the end of September , and then losing a little between September and the end of December (but still finishing positive). 2004 (which was following a 25% rise in 2003 [which I find interesting that 2003 ended at 10453.92 vs 2009 10428.02] was flattish through June, fell -3% at the end of September before recovering to +3% at the end of December. Also looking at the last column of the table, it is highly unlikely that the market will continue the torrid pace of the last 9 months – when the prior year was up 8% or more (about 1/2 of the time), it never had more that 27% rise – which would place the DJI around 13,243 (about where it ended 2007).  If it has as ‘typical’ year of 5.35% rise, then it would end around 11,000.

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