Dow Jones Likely Trending Up in the Next Four YearsCBOT: Micro E-Mini Dow Jones Futures ( CBOT_MINI:MYM1! ) #Microfutures
The United States will enter a new presidency on Monday, January 20th. Will the stock market continue its upward trend under the 47th U.S. President?
Before we set our sight on the future, it’s prudent to look back in history first. While it is not a guarantee for future performance, history does provide good intelligence. To find clues for our answer, I conducted an analysis on the Dow Jones Industrial Average (DJIA).
How the Dow Performed Under Different Presidencies
My research setup is as follow:
• I look at DJIA daily close prices for the past 50 years (from Aug. 1974 to Jan. 2025). This period covers 9 presidents and 13 four-year presidential terms.
• For all the presidents, I use their Inauguration Day January 20th as the start day, while setting the end day for January 19th four years later. I compare the changes in DJIA closing prices from start to finish for each 4-year term.
• The exceptions: Gerald Ford, who started his term on August 9, 1974, after Richard Nixon resigned; and Joe Biden, for whom I use the latest trade day January 15th.
Here is what I found:
• Gerald Ford (Aug. ‘74 – Jan. ’77): DJIA went up 181.7 points (+23.4%)
• Jimmy Carter (Jan. ’77 – Jan. ’81), down 8.4 points (-0.9%)
• Ronald Reagon (Jan. ’81 – Jan. ’89), up 1,288.1 points (+135.5%). The data can be further broken down to +68.6% in his 1st term and +45.7% in the 2nd term
• George H.W. Bush (Jan. ’89 – Jan. ’93), up 1,020.6 points (+45.7%)
• Bill Clinton (Jan. ’93 – Jan. ’01), up 7,345.6 points (+226.6%), including +110.8% in the 1st four years and +54.7% in the 2nd four years
• George W. Bush (Jan. ’01 – Jan. ’09), down 2,306.4 points (-21.8%), for which -0.4% and -20.9% for his 1st and 2nd terms, respectively
• Barack Obama (Jan. ’09 – Jan. ’17), up 11,783.3 points (+148.2%), including +71.7% in the 1st term and +44.6% in the 2nd term
• Donald Trump (Jan. ’17 – Jan. ’21), up 11,060.2 points (+55.8%)
• Joe Biden (Jan. ’21 – Jan. ’21), up 12,202.8 points (+39.5%)
Dow Jones advanced the most points under current administration (+12,203 points), with Obama coming in 2nd for 11,783 points. The DJIA index gained the most in percentage terms under the Clinton administration (+226%).
Across all nine presidents, DJIA was lower for one, flat for another, but moved up 7 out of 9 times. If you look deeper into the worst-performing years under George W. Bush, you will find that 9/11 terrorist attack happened in his first term and the 2008 financial crisis occurred in his second term. Both can be considered extreme events and outliners in the dataset.
Regardless which political party commands the White House, the Dow is more likely to move up than down. From the first day Gerald took office to the last week of the Biden administration, DJIA went from 777 to 43,133, a huge gain of 5,449%!
Trading with Micro E-Mini Dow Jones Futures
The above analysis gives us comfort in the upward mobility of the US stock market.
Further analysis of the DJIA shows strength in its Top 5 component companies.
• As of January 15th, DJIA went up 15.5% in the past 12 months
• Gold Sachs, which holds an 8.2% share by index weight, was up 57.5% in a year
• 1-year returns for the other top components are: United Health (+4.2%), Microsoft (+9.0%), Home Depot (+12.2%), and Caterpillar (+31.5%)
An investor may simply deploy the time-honored “Buy and Hold” strategy. The longer the holding period, the better the returns, barring extreme circumstances.
Given that the DJIA is trending up over the long run, active traders may consider using stock index futures to enhance their investment returns.
Micro E-Mini Dow Jones futures (MYM) offer smaller-sized versions of CME Group’s benchmark Dow Jones futures (YM) contracts. Micro futures have a contract size of 0.5 times the DJIA index, which is 1/10th of the standard contract.
CME data shows that the E-Mini and Micro Dow Jones futures have a combined open interest of 103,077 contract as of this Monday. According to the CFTC Commitment of Traders report, as of January 7, 2025, Leverage Funds hold 17,504 long positions and 11,695 short positions. With DJIA nearing its all-time high, “Small Money” is still bullish. Longs outweigh shorts by a 3:2 ratio.
Buying or selling one MYM contract requires an initial margin of $1,077. With Wednesday midday quote of 43,376, each March contract (MYMH5) has a notional value of $21,688. Compared with investing in stocks, the futures contracts offer a built-in leverage of about 20 times (=21688/1077).
Hypothetically, if Dow futures price moves up 10% to 47,714 in 2025, the index gain of 4,338 points will translate into $2,169 for a long position, given each index point equal to $0.50 for the Micro contract. Using the initial margin of $1,077 as a cost base, the trade would produce a theoretical return of 201.4% (=2169/1077).
Futures contracts have expiration days, and you may not hold them forever like stocks. To stay Long in the DJIA, a trader may consider a futures rollover strategy. An illustration:
• A trader would buy the lead contract March now, and hold it till the end of February
• He would then sell March and buy June, which will become the next lead contract
• He would repeat this process: buy September and sell June at the end of May
• Repeat this again to buy December and sell September at the end of August
This series of trades allows a trader to establish a long position in the DJIA throughout the year, while holding the most liquid contracts.
There is no guarantee that each trade will yield positive returns. But if the Dow is trending up over time, the winning would likely outpace the loses.
The leverage feature in futures works both ways. It would magnify the losses as well as improving the winnings. The good news is, a trader could put stop-loss on his futures trades, limiting the downside risks.
For example, our trader may set stop-loss at 42,000 when he buys the MYM at 43,376. If the Dow falls to 40,000, his position will be liquidated well before that when the price hits 42,000. The maximum loss incurred will be $688 (= (43376 - 42000) * 0.5).
The combination of Futures Rollover with Stop-loss could yield higher returns (thanks to the leverage) while maintaining a limited loss exposure. If the index bounces up and down but trends up in the long stretch, the trader will see both wins and losses. Since the wins are unbounded but the losses are contained, the overall returns would likely be positive.
The risk to long Micro Dow is that the US stock market enters a bear market, and DJIA trends down over a long period of time. The trader could incur a series of limited losses, and the gains were not sufficient to cover those losses.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
