Market Beat: The stock market presidential election cycle
TRUCKEE, Calif. andamp;#8212; As the elections approach and we get bombarded by the slew of political ads and rhetoric, you may hear some mention that the stock market follows an election year cycle. The stock market election cycle theory says that markets are the weakest in the year following an election.There is some data that bears this out. A study by Haver Analytics that analyzed returns for the Sandamp;P 500 going back to the year 1900 showed that the market averaged a 4.17 percent return in the first year following a presidential election, 4.31 percent in the second year, 11.26 percent in the third year and 7.77 percent in the fourth year. While those results may appear meaningful, there is really not enough data there to draw a meaningful conclusion.In the early part of the 1900s, the cycle was fairly strong, but recently that hasnandamp;#8217;t occurred. The Roosevelt, Truman and Eisenhower presidencies all started out with down years, but the George H.W. Bush presidency and both of Clintonandamp;#8217;s terms started out with strong stock market returns in the first year.In 2009, the first year of President Obamaandamp;#8217;s term, the Sandamp;P 500 returned 26.46 percent. So, even though over a long period of time, the first year tends to be the weakest, there have only been eighteen presidents and twenty-seven presidential terms. That is not enough data to be statistically relevant.It is worth discussing, however, because investors today hear a lot about theories like the presidential election cycle, and itandamp;#8217;s important to not make rash decisions based on unsubstantiated theories.Todayandamp;#8217;s stock market is influenced by many complex factors. Our global economy is evolving rapidly and in ways that no one completely understands. Super computers operating at the millisecond level crunch enormous amounts of data and sophisticated trading firms develop complex high frequency trading algorithms anytime they can find a statistical edge.The average investor is not likely to achieve market beating returns by following old strategies like the presidential election cycle or by using well known technical indicators like moving averages, chart patterns, etc. The key to successful investing is patience, discipline and having a plan that is suitable for your particular situation.Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at http://www.fusiontargetretirement.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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