Seasons Greetings!
All at Clear wish you a very happy, healthy and prosperous New Year!

Trump Numberwang

Calling all financial headline collectors! You would have been spoilt this past month, with wonderful examples of the Numberwang* nature of financial markets.

Source: WSJ/FT/Bloomberg/Reuters/Morningstar

Absolute textbook.

If he’s done nothing else, Donald Trump has managed to time his re-election perfectly, aligning it to a big, round number.
Why should 6,000 matter any more than 5,998 or 6,007?
Economically, it doesn’t – there’s no law saying that something does or doesn’t happen to the S&P 500 at 6,000.

But psychologically we absolutely LOVE round numbers. They stick in our brains. 6000 just feels nicer than 6,007.
A favourite example is in marathon finishing times (from nearly 10 million individual runners). In the “amateur runner” range** typically, people try to get under a specific number.

And so, you see MASSIVE clustering before each round number hour cut-off (more people finishing than expected, diving over the line) and then a sharp drop off in the few minutes afterwards.

Source: Eric J. Allen, Patricia M. Dechow, Devin G. Pope, George Wu (2017) Reference-Dependent Preferences: Evidence from Marathon Runners. Management Science 63(6):1657-1672

Once you recognise this tendency, you’ll see it everywhere: whether it’s record sales, Premier League goals scored or Insta followers.
Here’s another one though:

Think about the stock indices you look at. FTSE 100, S&P 500, EuroStoxx 50, Russell 2000.

Maybe there’s an untapped market niche of stock benchmarks that are, like, prime numbers. The Prime UK 107 Index, or the Prime US Large Cap 503.

Psychology would suggest not…

*Want to know more about Numberwang? See: https://www.youtube.com/watch?v=0obMRztklqU
** Amateur runner is from just below 3 hours up to 5 hours.

The Santa Rally

‘Santa Rally’ is the theory that markets always go up in December.

Using data going back to 1930, of the 94 Decembers we see that 69 are positive.

Source: S&P/7IM

That’s nearly three-quarters of all Decembers. Christmas truly is likely to have been a time of good cheer for investors.

Of course, we should note 60% of ALL months since 1930 deliver positive returns through history. So, investing in any month from start to finish gives you better odds than a coin flip of being positive – except for Sad September where returns are positive just 45% of the time.

So, is it real? Was December a stocking-full of market gains?
Well, hold your jingle-horses.

Unfortunately, even with the extended data, 95 observations really isn’t statistically significant.

So, sadly, we must suggest that the Santa Rally is just another Christmas fairy tale.

Brighton Marathon.

Eaten too much at Christmas and New Year? Need something to aim for with your training?

Clear Minds still have two places available for the Brighton Marathon on Sunday 6th April.

For more information please contact: marianne@clearminds.co.uk.