Hemline Index falls out of fashion

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By Michael Sincere

BOCA RATON, Fla. (MarketWatch) — Of the hundreds of market indicators used by traders and investors to help predict the market’s direction, one style never seems to fall out of fashion — but it should.

The Hemline Index, first observed by economist George Taylor in 1926, predicts the market’s future by the way women dress. It works like this: when women’s hemlines (the line formed by the outside of a skirt) are shorter, women are taking more risks and spending, which is good for the economy and the stock market. Longer hemlines, in contrast, are a negative sign for the economy.

I’ve been amazed at the number of financial reporters, fashion editors, and professional fund managers who are enamored with the Hemline Index. For almost 85 years, thousands of articles have been written about this indicator..

After doing extensive research for my book, All About Market Indicators, I needed to find out if the popular but obscure Hemline Index really works. Is it a valid indicator or a silly myth?

Project runway

I began my research by attending two fashion events in Miami Beach: Mercedes-Benz Fashion Week and Funkshion Fashion Week. These shows are the real deal, and include the latest fashions by emerging and well-known designers. Sports celebrities, movie stars, and the news media also attend the shows along with dozens of models. I wondered: is this why so many financial reporters write about the Hemline Index?

At one of the shows, I approached a tall model, Kira Alvarado, who wore an extremely short dress by designer Casey Levan. This had to be a good sign for the economy. “Excuse me,” I interrupted, pointing to her chic outfit, “but do you think your hemline can predict what the stock market will do?”

She gave me a confused look. “I don’t see how that’s possible.”

“It’s a theory that’s been around for 85 years,” I explained. “It’s called the Hemline Index.”

“I never heard of it.”

I continued to interrogate her. “Would you agree that short hemlines are the most current style?”

“In South Beach the style is always short,” Alvarado replied with a smile. “That’s what people want.”

I got it. In Miami Beach, at least, the Hemline Index is completely immaterial.

The price is right

To learn the truth about this intriguing indicator, I needed to talk to a fashion expert, preferably from New York. Luckily, I ran into Stephanie Solomon, a professional Bloomingdale’s buyer and authority on women’s fashion. She told me some heartbreaking news. “The Hemline Index is a silly myth that has outlived its usefulness.”