Stock Performance Presidential Election Years

Stock Performance Presidential Election Years – It doesn’t really come as any surprise that stock performance and politics could have some correlation. The choices, public appeal and general day to day workings of any administration greatly affect the economy from consumer confidence to how much profit a corporation can make. Some people believe that there is an almost direct relation between the stock market and periods in presidential terms with people like Yale Hirsch tracking 4 year cycles in his Presidential Election Cycle Theory. Stock Performance Presidential Election Years So what is this Presidential Election Cycle Theory? Stock Performance Presidential Election Years Well in the Stock Trader’s Almanac 2004 (Almanac Investor Series) Hirsch presented his evidence that between 1942 and 2002 15 approximately 4-year stock market cycles occurred tying in closely with the elections. The theory says that during all presidential cycles the first half is weak and the second half is strong, something that can somewhat be tracked in the stats and has some merit as a theory. Investopedia has an excellent article about the theory (and the delve into reasons why it may not be correct) and below is their summary of each of the years and how the stock market works during the cycle. Year 1: The Post-Election Year The first year of a presidency is characterized by relatively weak performance in the stock market. Of the four years in a presidential cycle, the first-year performance of the stock market, on average, is the worst. Year 2: The Midterm Election Year The second year, although better than the first, is also is noted for below-average performance.  Bear market  bottoms occur in the second year more often than in any other year. The “Stock Traders Almanac” (2005), by Jeffrey A. and Yale Hirsch, Hirsch notes that “wars, recessions and bear markets tend to start or occur in the first half of the term.” Year 3: The Pre-Presidential Election Year The third year or the year preceding the election year is the strongest on average of the four years. Year 4: The Election Year In the fourth year of the presidential term and the election year, the stock market’s performance tends to be above average. Stock Market Return by U.S Presidential Term Year – 1948-2008 Year Average Annual Return 1 7.41% 2 10.21% 3 22.34% 4 9.79% Source: S&P 500 Total Return Index Source:  Investopedia.com The Investopedia analysis, which is well worth a read, is careful to point out that in statistics the data collected for this theory is relatively small, so not totally reliable. It makes total sense, to me at least, that there may be a small link between Presidential election years and economic activity but I am not sure as amateur that I am that I fully buy such a theory. I do think that the state of an economy at a particular time reflects on who gets chosen for president. In my home country, the UK, it seems that if the economy is going good people pick a Labor (similar to Democrat) PM and if it’s going bad they tend to go with Conservative. Stock Performance Presidential Election Years, You Thoughts? So is the theory and the data all bull-cr*p, is it just people searching for trends and bending data to suit or do you think it has some merit? Have you read into this more and do you have any other insights to share? Related: Best Investing Ideas for 2012 Thanks for reading.

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Stock Performance Presidential Election Years