Longest Interval Between Dow All Time Highs

Even though the Dow was down by 12 points today, it’s beginning to look increasingly likely that we’ll see a new all time high for the index in the not too distant future.  The previous all time high was at 14,164, just 281 points away from where the index closed today.  The index hit that mark in October 2007–a little over 5 years ago.  That’s the 5th longest span in history that the Dow Jones Industrial Average has gone without making a new high.  After the depression it took 25 years to get back to its highest levels.

Can BAC Double Two Years in a Row?

Bank of America was up 108% last year to lead all members of the Dow.  Amazingly, one can argue that even after the 100% return, BAC is still cheap though.  The stock trades at a little over 0.5x book value, which is a steep discount to its peers.  Although fundamentals say that a double is not an absurd idea, would a back to back doubling have precedent?

At least in the last 13 years, the follow up performance of the previous year’s best Dow stock (the “Champ” of the Dow) has not been good.  Since 1999 the defending Champ has been negative 10 out of 13 times in the following year.  Six of those times the Champ has been down by double digits and the average performance is -9.58%.  Below is the performance of the past Champs in the year that they won the title and the year they tried to defend it.  BAC shareholders beware.

Performance of Best Dow Stock in Following Year

S&P 500 Historical Annual Performance vs. Dow

After today’s selloff, the S&P 500 is up 7.8% for the year (ex-dividends) while the Dow is only up 2.9%.  This means that the S&P 500 is outperforming the Dow by 490 bps, which seems like a lot given that the indexes are both large cap indices.

Still if the indexes ended the year with this performance, it wouldn’t be the largest historical spread between the two.  In 55 years of S&P 500 history, there have been 10 years that it has beaten the Dow by more than 5% (ex-dividends).  There are also 9 years that the Dow has beaten the S&P 500 by the same spread.

Makes you think–what’s the point of benchmarking active managers if even similar benchmarks outperform one another from year to year?

Dow Jones Monthly Gain Streaks

As of the end of September, the Dow has only had one down month in the last 12.  If the market closes the end of October where it is today, the Dow would have risen in 12 out of the last 13 months.  For a look at how this compares to history, below is a table of other big Dow monthly gain streaks that were only interrupted by one down month.  I’ll dub these 1 hitters–almost perfect games but gave up one month in the middle of a hot streak.

There are only 4 other occurrences in 112 years that the Dow has had a longer one-hit streak than the current one.

Dow Trying to Post Positive Return for 8th of 9 Months in 2012

Near the midpoint of the month, the Dow is currently up 1.78% for September.  If the index holds up and ends September in the green, it will mean that the average has risen in 8 out of 9 months in 2012 (although the S&P was negative in April, the Dow eked out a slight gain).  What would it mean for the Dow to maintain such a high batting average?

In 112 years of Dow history since 1900, the index rises in 6.8 months per year on average.  In other words, the Dow posts positive returns in a little over half of all months.  Since the Dow has already risen 7 months this year, the Dow would have to post negative returns through the end of the year in order to keep pace with the average.

Looking at history it’s not at all unusual for the Dow to rise in 8 or even 9 months of the year, but beyond that the frequency begins to wane.  The Dow has never risen in all 12 months of any year and has only risen in 10 or 11 months 9 times out of 112 years.  The last time the Dow rose in 10 months of the year was 2006.

Number of Months that Dow is Positive Per Year

Dow Monthly Best and Worst Returns

Aaaaaand we’re back.

Now that we’re past labor day, the summer of 2012 is (unofficially) over.  Kids are headed back to school and everyone else back to work.  For the market, the transition to fall has historically made for a bumpy September.  Below is a chart of Dow Jones returns since 1900 showing the maximum and minimum monthly returns for each month as well as the average return.

Not only is September one of three months that shows negative returns on average, it also has the distinction of being the month with the greatest negative skew, meaning that the worst month in the history of the Dow was in September.  Of course, there is nothing mystical about these numbers, and just because September has historically been a tough month doesn’t mean it has to be in 2012.  Nonetheless, with the S&P near YTD highs, perhaps it’s wise to proceed with caution.