Winter Solstice

The winter solstice, just passed, is the shortest day of the year. It marks not the depth of winter, but the onset. The seasons lag the sunshine, as shown in the chart below. The coldest days come five or six weeks later.

WeatherTo make this chart, I downloaded twenty years of temperature data from the University of Dayton, and fit a sine curve to them. Then, I computed the hours of daylight throughout the year, at 40 degrees north latitude. The latter curve is not empirical; it’s straight-up geometry.

What does all this have to do with the stock market? The relationship between these two sine curves reminded of this one, below. It’s the sector rotation model from stockcharts.com. The stock market is a leading indicator of the business cycle.

Business Cycle

The market is about as noisy as my temperature data, but the basic idea is that its peaks and valleys lead those in the real economy, just as day length leads the seasons. After this week in the market, traders might be feeling a chill.

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