Sunspot activity and stock market

written by Sergey Tarassov

Sunspot activity is a very interesting subject. As to my knowledge, the first person who studied the effect of  Sunspot activity was William Hershel. He discovered the effect of Sunspot activity  on wheat prices ("reported that during five recent solar minima, or periods when the sunspots were few and far between, the price of English wheat had peaked"). You can easily find in the Internet the materials regarding this subject. In this article I will show you how to do the simplest case study regarding the effect of Sunspot activity on the stock market.

For better understanding, I put on one chart the oscillations for Dow Jones Industrial index since 1885 till now (March, 2011) together with Wolf Sunspot activity index: 

There are some things that we can say right away, just looking at those charts together. First of all, pay attention that recovering from two greatest Crisis  (1929 and 2008) started when Sunspot actvity was very low (years 1933 and 2009 accordingly).

Here are more detailed charts for:

Great Depression recovering

and the recent Great Financial crises:

However, when I conducted more detailed analysis, I could not find any significant correlation between Dow and Wolf index. I expected to find a correlation between historical volatility and Wolf index, but did not find it.

There is only small correlation between Top turning point and Sunspot activity index - the price tends reach the Top turning point when the Sunspot activity is low, this scattered diagram reveals this fact:

The influence of Sunspot activity is much more stronger when we deal with commodities market (which was Hershel's studies).

Below you can see cattle futures prices together with Sunspot activity index:

Black curve (normalized cattle prices) and red curve (Sunspot activity index) coincide with each other, the correlation coefficient between these curves is 24%, and covered interval (110 years) is big enough to make a conclusion that the correlation between cattle futures prices and Sunspot activity index is present. As Sunspot activity should increase for the next several years, we are waiting a rising price for cattle futures.

Live cattle is one thing, how about grains? 

It is very interesting to study the correlation between corn prices and Sunspot activity; here is the chart: 

You see here that, prior mid of 1950s, there was a strong correlation between corn prices and Sunspot activity. However, since the end of 1950s this correlation had been destroyed. I think this is a result of spreading new agricultural technologies in 1960s - "Green revolution". Obviously, these technologies did not affect much the cattle market.