Years ending in 7, such as the current year 2017, have a bad reputation among many stock market participants. Large price declines tend to occur quite frequently in these years.

Just think of 1987, the year in which the largest one-day decline in the US stock market in history took place: the Dow Jones Industrial Average plunged by 22.61 percent in a single trading day. Or recall the year 2007, which marked the beginning of the great financial crisis.

Given that the current year is ending in 7 as well, is there a reason to be concerned, or is the supposed pattern a myth?

The pattern of the Dow Jones Industrial Average in the course of a decade

Below you can take a look at the typical pattern of the DJIA in the course of a decade.

The chart shown below is not a standard chart. Instead it shows the average pattern of the DJIA in the course of a decade since 1897. The horizontal axis shows the years of the decade, the vertical axis the average performance of the index. Thus one can discern at a glance how the index typically performs in individual years depending on their last digit.

DJIA, typical pattern in the course of a decade since 1897

Years ending in 7 tended to be marked by large setbacks. Source: Seasonax

As you can see, in the first half of the decade, i.e. in the years ending in 0 to 4, the DJIA overall barely rose on average. By contrast, in years ending in 5 (highlighted in yellow above) the performance of the index tended to be particularly strong.

Alas, years ending in 7 (highlighted in red) typically saw a sharp retreat in prices in the second half of the year.

Thus it appears as though the stock market is indeed generating a specific pattern in a 10-year cycle. Is this sheer coincidence, or does such a 10-year stock market cycle indeed exist?

In order to assess that, we will take a close look at the 19^th century as well. Due to the length of the 10-year cycle there are basically no other time periods one can sensibly review in this context.