The Little Book of Stock Market Cycles by Jeffrey A. Hirsch Summary

The Little Book of Stock Market Cycles by Jeffrey A. Hirsch explores recurring patterns in stock market behavior, such as presidential election cycles, seasonal trends, and long-term economic booms/busts. It provides historical evidence and actionable strategies to leverage these cycles for investment gains, including the "Santa Claus effect" and best trading months. Hirsch combines 30+ years of market analysis with insights from the Stock Trader’s Almanac.

This book suits intermediate investors familiar with market terminology who want to incorporate cyclical trends into their strategies. It’s valuable for those interested in historical patterns, like the four-year presidential cycle’s impact on equities, or traders seeking data-driven entry/exit timing. Beginners may find some concepts challenging due to specialized terms.

Yes, for investors seeking cyclical strategies. It offers time-tested insights, like the outperformance of small-cap stocks in January (“January Effect”). Critics note its US-centric focus and occasional lack of statistical depth, but its actionable frameworks—such as midterm election year rallies—make it a practical resource.

• Presidential Election Cycle: Markets tend to rise in years 3-4 of a presidency.
• Santa Claus Rally: Late December to early January gains.
• Sell in May Effect: Summer market lulls.
• Four-Year Boom-Bust Cycle: Tied to economic expansions/recessions.

Hirsch argues the third year of a presidential term historically delivers the strongest returns (average 16.3% S&P 500 gains since 1949). Policies enacted early in a term often fuel late-term economic growth, creating predictable rallies. Midterm election years also show recovery patterns post-October.

The January Effect refers to small-cap stocks outperforming large caps in January, driven by tax-loss harvesting reversals and new investment inflows. Hirsch notes this pattern has weakened but still offers tactical opportunities when combined with other cycles.

Critics highlight its overreliance on US historical data, lack of robust statistical validation, and diminishing cycle efficacy due to algorithmic trading. Some strategies, like the “Halloween Indicator,” face skepticism in modern markets.

As editor-in-chief of the Stock Trader’s Almanac (56+ years of data), Hirsch leverages decades of cycle analysis. His expertise in blending technical, fundamental, and seasonal trends adds credibility to frameworks like election-driven sector rotations.

Hirsch focuses on US markets, limiting direct global applicability. However, the methodology—tracking political cycles, seasonal liquidity shifts, and macroeconomic trends—can inspire similar analyses for non-US investors.

This rally typically occurs in the last five trading days of December and first two of January, averaging 1.5% S&P 500 gains since 1950. Hirsch ties it to holiday optimism, institutional window-dressing, and year-end bonuses.

He advises:

• Overweight equities in post-midterm election years.
• Shift to defensive sectors (e.g., utilities) during summer downturns.
• Leverage October-March for higher-risk holdings, aligning with historical outperformance.

Yes. Hirsch links inflation spikes to market volatility, noting cycles where Fed rate hikes to curb inflation precede recessions (e.g., 1970s stagflation). He emphasizes adjusting sector exposure during inflationary periods.