Presidential Cycle and The Stock Market

David Frost // Additional Articles


January 3  

Our economy certainly isn’t short on reasons for concern.  Even though the pundits are claiming victory and continue to maintain their reliance on the Federal Reserve, we should exercise caution and beware of the herd mentality.

As the new year gets underway, you will hear much to do about the fact that in the third year of a presidential cycle, the market tends to provide average returns of about 14%.  These figures date back to 1928 and are indisputable.

Why does this occur?  Mainly, we would suggest it’s more of a coincidence than anything material, but if you had to point to any one thing, it would be for the leadership to begin campaigning for the upcoming election and for them to try and win over various constituent groups.  In doing so, they tend to try and pass legislation that “gives” to the American public when in fact, they just move money around and spend.  However, their objective is to give the appearance of providing positives and in turn the mood remains good, and thus does the market.  Not scientific, but neither are most explanations of the “presidential market cycle.”

In reality, the market is going to do whatever it is going to do and after the fact the number it provides, whether positive or not, will be factored into the average and we’ll discuss it again, and again.

We would caution on using any such indicator for investing advice.

Always invest with vigilance.

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About the Author

Trading and investing in markets is second nature to some, but a mystery to others. The goal is to provide a forum where everyday people aspiring to be part time or full time traders will learn how view markets differently and profit beyond their wildest dreams.

David Frost