While the Gregorian calendar’s new year is a few forgotten resolutions ago, the Lunar New Year is fast approaching.
This week, people living in China – and elsewhere throughout much of Asia – will celebrate Lunar New Year by spending time with family and exchanging gifts.
Every year on the Chinese lunar calendar is named after one of 12 animals in the Chinese zodiac cycle. The year of the rooster is coming to an end, and before that was the year of the monkey. Other years are named after dragons, rabbits, rats and snakes, to name just a few.
There’s no particular reason that the Lunar New Year (sometimes called Spring Festival) should have much of an impact on stock markets. Whether in Asia or in the U.S., stock markets don’t know the month – or the zodiac year.
But it’s a historical fact that some years of the Chinese zodiac are worse than others for stock markets. And the year of the dog – which starts on February 16 – is one of them. The year of the dog has in the past meant below-average returns for both Asian and U.S. stock markets.
Year of the Dog for Asia
The MSCI Asia ex-Japan Index reflects the performance of major Asian markets, excluding Japan’s. Unfortunately, the index has only existed since 1988, so it has yet to complete three full 12-year cycles of the Chinese zodiac. Thus the sample size used to calculate the figures below is quite small.
The graph below shows that the year of the dog has been the fourth-worst year for Asian markets.
Past years of the dog have averaged a return of 4.3 percent. That’s 40.4 percentage points lower than the best-performing zodiac year, the rooster. And it’s well below the index’s average return of 13.1 percent a year.
But again, the MSCI Asia ex Japan Index’s performance during the year of the dog only has a sample size of two. So take these results with a giant helping of salt.
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Year of the Dog for the U.S.
Even though Lunar New Year is one of the world’s most popular holidays, it’s more of a cultural curiosity in the U.S. It takes a back seat to Christmas, Halloween and other western holidays.
Since 1928, U.S. markets, as measured by the S&P 500, have performed in line with the overall average for the index. The year of the dog’s historical performance of 11.3 percent is similar to the index’s average of 11.6 percent.
These results are a little more robust than those for the MSCI Asia ex-Japan Index, as the S&P 500 has existed longer. We used performance figures for the S&P 500 going back to 1928, so the above reflects nearly eight full cycles of the 12-year Chinese zodiac.
Now, as shown above, both Asian and U.S. markets should be avoided during the year of the snake – Asian markets have on average been flat, and the S&P 500 has only returned 1 percent on average. The next year of the snake will be 2025, so there’s no need to worry about it for a while.
There’s no scientific basis for the predictive powers of the Chinese zodiac. Just like there’s no basis for the January barometer, or the “sell in May and go away” trading rule (but they seem to work).
Publisher, Stansberry Churchouse Research