New York Rain and Stocks - - Silly, But Accurate

Watching the rainfall data for New York City and its relationship to the stock market is one of the funnier relationships I have discovered in the few decades I have been doing this.  There is no reason I can think of for why such a relationship should exist, and yet there is a large amount of evidence showing that the two are related.

It is a coincident relationship, not a leading one, so it is not like we can watch what the New York City rainfall does, and make conclusions about what the stock market will do.  But if New York is heading into a drought, as the El Niño and La Niña cycle flips, then that could have lasting implications.

One factor which gets in the way of this relationship correlating as tightly as it might has been the Fed being willing to step in and do quantitative easing, or "QE".  Every time they do that, it lifts the stock market.  If you look closely at the chart above, you might notice that the timing of either the Fed or the European Central Bank doing QE seems to coincide with New York City entering a drought.  How does the atmosphere know?

We did not get QE in 2022, which was the latest drought, and it brought a meaningful bear market that year.  I do not know if the Fed is going to start QE5 this time, although they do see enough of a problem to start cutting the Fed Funds rate.

Now, in case you are thinking that this is just some spurious recent correlation, here is the same comparison from a century ago.

Notice how there was a big drought in New York City lasting for the entire period of the worst bear market of all time.  And once the rains returned in a big way starting in 1933, so did the gains for stock prices.  And the Fed seems to have thwarted the 1924-25 drought's effects on stock prices, thanks to three half-point cuts in the Discount Rate in May, June, and August 1924 which helped lift stock prices.

So what can we do with this information?  The best answer is that we can smile, and perhaps appreciate that the movements of the stock market may be influenced by more than just earnings and interest rates.  A correlation on its own does not tell us what is causing it, but it does tell us that there is a relationship.  The lesson is to allow ourselves to be open to seeing how other factors may be involved in moving the stock market besides just what you hear in the financial media.