Looking at long-term cycle patterns, what might 2023 hold for equity markets?
Looking at long-term cycle patterns, what might 2023 hold for equity markets?
What 100-year-old static cycle models tell us about the year 2023. And the next days approaching 2023...
First, lets be clear: There is no change in current dynamic dominant cycles for the global stock markets.
There is not much new to report in terms of the current prevailing market cycles for global US stock markets. Just look at the last ~2 articles available in this publication. The financial stress index started to rise as expected, the volatility index started to move up from 25 and 30 as expected, and stock prices plunged again, as expected. Four weeks ago, I wrote about it here if you haven't read it yet. It is still valid:
Just to recall, the weekly long-term cycle on the S&P500 has a length of 180 weeks and is still pointing down into 2023. (As seen in the weekly cycles model “The Calm Before the next Wave” in Jan. 2022).
How do these current dominant “dynamic” cycle projcetions fit into some longer-term static cycle projections?
So, as the dynamic cycle analysis will not reveal any new to us, lets check long-term static cycle models. As cycle researcher, you would always cross-validate if some existing long-term cycle model can confirm a current dynamic cycle projection.
The “Funk” 56-years cycle and the 56/9 cycle grid
Lets start with a cycle which was first published back in 1932 by JM Funk. The “The 56-Year Cycle in American Business Activity”. Most of the background information on this cycle is due to the great research of David McMinn.
Financial crises are the most dramatic phase of market cycles, when investor sentiment suddenly shifts from greed to fear. Viewed in chronological order, there is no regularity between historical crises, and their timing may appear random.
Nevertheless, financial turmoil does cluster with high significance in Funks 56 year cycle and the McMinns 9/56-year grid.
The cycle model consists of a grid with intervals of 56 years on the vertical (called sequences) and multiples of 9 years on the horizontal (called subcycles). The 9/56 year panic cycle grid has persisted since at least the mid-1800s, despite radical changes in financial structures, technological development, incomes, market regulation, wars, and so on. It is a consistent feature of the free market economy.
I would refer you to the work of David McMinn for more background on this model. The key is the following grid, which shows the 56-year sequences from top to bottom per column and the 9-year cycle from left to right per row:
Why is this 56/9 year grid important?
27 out of 30 major financial panics in the 1760-1930 era appear in the 9/56-year “double sequence grid”.
It cannot be a coincidence that virtually all financial crises appear in this grid. The statistical significance analysis confirms the assumption to be true.
Just look at the most prominent crisis found in the grid:
The Panic of 1837 led to closure of most banks with unemployment rates reaching all time highs.
Bank runs have been the consequence during the Panic of 1857.
The financial crisis of 1873 triggered the “Long Depression” in North America and Europe.
The Panic of 1893 was an economic depression in the United States that began in 1893 and ended in 1897.
Wall Street Crash of 1929: Signaled the beginning of the Great Depression.
There are many more financial crises that fall exactly in the years shown by the 56/9 year rhythm. In the table, these are highlighted in red and blue, respectively,
But the main reason I'm highlighting this static cycle from 1932 is the continuation of the cycle in the missing cycle series. Highlighted by the purple mark in the table.
Can you name the next cycle year? 56 years in the vertical added to the year 1967 and 9 years in the horizontal following the year 2014?
….
Yes, you have found the answer for sure: 2023.
Of course, this does not mean that a financial panic will occur in every year listed in the table. But if a financial panic does occur, the year is very likely to be found in this grid.
This is the context a cycle researcher is looking for. Our current dynmic cycle projections all point down. The weekly S&P 180 week cycle projects a low around May 2023. This is in confirmation of a possible financial panic (=key market low) based on the Funk 56years cycle grid - published 1932.
The Benner Cycle Model
Another long-term static cycle model also lists the year 2023. The Benner cycle. Since it may not be definitively clear to whom it is attributable. It is said that it was first published by Tritch on a business card in 1872 and later publicized by Benner. We will never know for sure. Nor does it matter - but it is fascinating to consider a cycle model first published around 1875.
First, lets quickly summarize the key cycles the “Benner” model is based on:
A) An average 9.2 years pig iron cycle, based on
A sequence of 9, 7, 11 years cycle lows in pig iron prices
A sequence of 8, 9, 10 years cycle highs in pig iron prices
B) An 54-years panic cycle clustered in
A sequence of 16,18, 20 years of panic cycles
The following original chart has been compiled based on this “Benner Cycle” sequence starting 1783 and continued into 2053:
Dewey, the founder of the Foundation For the Study of Cycles, reviewed the Benner cycle after it was published:
For our example of a cycle coming true after discovery, let us go back to one of the earliest cycle determinations -the 9-year cycle in pig iron prices which was discovered by Samuel Benner in 1874. In studying pig iron price behavior in the data available to him at that time, Benner noticed that peaks in these figures came at 8-, 9-, and 10-year intervals and repeat (an average 9-year cycle), and that troughs came at 7-, 11-, and 9-year intervals and repeat. He projected this pattern from 1872 into the future. This gave him the years in which to buy, the years in which to sell. If you had used these dates for trading, your percentage gains between 1872 and 1939 would have been 50 times your losses!
If you zoom into this static cycle chart, the year 2023 is listed in the sequence
“Years of Hard Times, Low Prices and a good time to buy Stocks”
as seen in the next zoom-in view:
As always, static cycle forecasts should be taken with a grain of salt. But these models are well known and have been researched with additional references. These references contain the individual advantages and disadvantages, which can be researched further. I leave this to you, the reader and educated cycle analyst.
The reason for referring to these models is the fact that my current dynamic cycle analysis shows a continuing intact downtrend. These dynamic models also come to a conclusion for a low in 2023, and are thus in line with these over 100 year old static cycle models.
I made a Cycles TV video with additional background comments here, if interested:
Regards,
Lars
Source: McMinn, D., 2021. 9/56 Year Cycle & Financial Panics. Cycles Magazine. Vol 50. No 04. p 31-51. July. https://journal.cycles.org/Issues/Vol50-No4-2021/
Source: Dewey (1967) “The Case for Cycles”, page 14. https://cycles.org/wp-content/uploads/2020/09/The_Case_For_Cycles_FSC.pdf
Thank you Lars. I appreciate the work you do for us. Thanks again.