Year Of The Dog Spells Good Times For Wall Street: 5 Picks
Zacks Investment Research | Feb 19, 2018 10:21PM ET
The Chinese Year of the Dog kicked off on Feb 16, which has historically been promising for the U.S. stock market. Astute investors, thus, should turn bullish and use this encouraging calendar year to their advantage. And why not? The Republican tax overhaul is expected to have a positive effect on earnings this year. Fears of surging inflation and higher interest rates, on the other hand, are unwarranted and likely to ease.
Year of the Dog is Great for the U.S. Stock Market
The U.S. equity market traditionally performs well in the Year of the Dog, per LPL Research. Data from as early as 1950 showed that the 12-month return on the broader S&P 500 in the year was up more than 15% on average.
In four of the last five Year of the Dog, the market clocked double-digit gains. In 1958, returns were the highest, up 32.9%. In the most recent one ending in 2006, the returns were also quite solid, increasing 12.4%.
| Year | S&P 500 Return in the Year of the Dog |
| 1958 | 32.9% |
| 1970 | 12.7% |
| 1982 | 20.7% |
| 1994 | -2.3% |
| 2006 | 12.4% |
| Average | 15.3% |
(Source: LPL)
Ryan Detrick, Senior Market Strategist at LPL added that “in fact, out of the 12 zodiac signs, no year sports a better average return.” In the past Year of the Goat, Tiger, Ox, Rabbit, Pig, Monkey, Dragon, Horse, Rat, Rooster and Snake, the S&P 500 had given an average return of 14.9%, 13.8%, 13.5%, 10.6%, 10.5%, 9.2%, 8.7%, 6.3%, 3.2%, 1.8% and 0.8%, respectively.
Though a few may be skeptical about investing based on stars, but this Year of the Dog has certainly started off on a bullish note. The S&P 500 managed to log its sixth straight rise on Feb 16. After all, U.S. earnings expectations have sharply accelerated on tax stimulus, while inflation scares are overblown.
Tax Plan to Boost Earnings
The Trump administration’s tax cut policy is expected to boost earnings, in a market that already has historically high valuations. The headline-grabbing move was that the corporate tax rate is lowered from 35% to 21%. Republicans also repealed the 20% corporate alternative minimum tax, while any income brought back from overseas will be taxed 8% to 15.5%, instead of the current 35% (read more: Zacks Investment Research
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