Fashion Predicts Stocks – As Dress Hemlines Rise, So Do Stock Prices
It appears that fashion and stocks mix just like water and oil – when things are shaken up, they may unite, before drifting away from each other as fast as the river flows. Most of the time, these two remain separate entities. The only relationship between fashion and stocks is that some stocks are fashion companies – that’s about all. The world of stocks has its own line of superstitions and they’re nothing like Friday the 13th or a black cat crossing your path. You’ve heard about a few of these from us such as the Halloween Indicator, the January Effect, and the Super Bowl Theory. Sit back and enjoy the (fashion) show as we introduce you to another superstition – the Hemline Indicator and prove to you that fashion and stocks do have something else in common.
What Is The Hemline Indicator?
This Wall Street superstition “claims that when hemlines rise, so do the markets. Likewise, when hemlines fall, the markets fall,” according to Investing Answers. Are hemlines really an indicator of the stock market’s future? History has given us a few examples of this theory, which goes to show that this isn’t just a one-time thing. The chart below from Smith Barney indicates that in 1925, short flapper skirts of the Roaring 20s gave way to a rise on the stock market, just as the longer hemlines of the early 1930s seemed to forecast a downfall leading into the Depression (think: the crash of 1929). The economic boom of the 1950s went hand in hand with the knee-length poodle skirts, while the conservative 1970s made hemlines longer again, pulling down the stock market. The stock market went up and down accordingly throughout the years. The 1980s welcomed the Material Girl inspired mini skirt up until the 1987 crash.
The hemline indicator
How This Trend Started
The Hemline Indicator, was first presented as a theory by economist George Taylor back in 1926, according to The Big Picture. Research afterwards only helped prove that this is actually a valid theory. According to Taylor, this skirt theory suggests that women’s dress hemlines rise along with the stock market so that when the economy is good, mini skirts become popular, like in the 1960s. Likewise, when the economy is doing poorly, hemlines can drop down overnight, just as the stock market crashes.
According to Investopedia, it is also referred to as the “bare knees, bull market” theory. This theory gained value in 1987 when skirt lengths changed from mini to floor-length just as the U.S. greeted the market crash. The same happened in 1929, but “many argue as to which came first, the crash or the hemline shifts.” When skirts get shorter, it is time to buy and when they get shorter, it is time to sell. Investopedia explains that this shows that a positive economy leads to happiness and fun. This ‘fun’ is then reflected in the shorter hemlines, hence the reason why they’re indicative of a good market, while long skirts are a commonly reflective of rather bad news.
What about the present?
The stock market seems to climb since the 80s, but is this a response to the barely-there hemlines that dominate today among hemlines of varying lengths? As Investing Answers sums up, “Even designers aren’t sure what to make of the current economy – 2011 hemlines appear just as uncertain. Perhaps investors should put this theory on the backburner until 2012.” 2011 was a difficult year for utilizing the Hemline Indicator as a guide since skirt lengths varied from “sky high-minis to long, elegant sheaths.”
A single fashion show can feature all lengths – ground grazing maxi dresses, mid-calf length midi dresses, and can’t-be-any-shorter mini dresses. How does this represent the stock market? In the present, associating a superstition with the stock market is a difficult task due to the ongoing changes that envelop us. The article from A Big Picture analyzes the midi-look that was present in 2010 and 2011 – a length that is longer than the mini, and shorter than the floor-length skirt. If the Hemline Indicator is true, then this “lengthy look… is a bearish indicator for the stock market,” according to the article.
Fashion in the Trading World
It is highly unlikely that a fashion editor from a magazine will think highly of the trading world as being parallel with the magazine’s chosen fashions, just as a Wall Street analyst may cringe at the possibility that the glossy pages of a magazine could have anything in common with the conservative financial sector. As with other Wall Street superstitions, this is just a theory which may or may not hold true. Sure, it has come true in the past, but if everyone starts wearing long skirts once spring rolls around, is the market headed for a crash? Not necessarily, but if it comes to the unpredictability of fashion and stocks, a factor these two worlds have in common – you simply never know.
