4-Year Presidential Election Cycles in the Stock Market – Election Year Seasonality

4-Year Presidential Election Cycles in the Stock Market – Election Year Seasonality

The presidential election cycle theory is a stock market performance theory that asserts, based on historical data, that the stock market’s performance in the first two years of a U.S. president’s term will likely outperform the stock market’s performance in the last two years of a U.S. president’s term. Furthermore, midterm election years show poor performance up until the 4th quarter.

Yale Hirsch was, to our knowledge, the first to quantify the effect of the Presidential Cycle and its effect on stocks. They updated their findings in the Stock Trader’s Almanac 2020, the 53rd edition of this fantastic book.

We quote from the book about 4 year Presidential stock market cycle:

Presidential incumbency is a powerful phenomenon and the driving force behind the 4-Year Presidential Election Cycle. This quadrennial quadrille is what has made the Pre-Election Year the best year of the cycle and Election Year second best. Since 1952 S&P 500 is up 12.5% on average in election years when a sitting president is running for reelection vs. 6.7% in all election years and –1.5% in election years with an open field and no incumbent commander-in-chief running for a second term.

Stock Trader’s Almanac also writes that the midterm election year shows that the second year has generally been the weakest in a president’s term (2022 is such a year, 2018 as well – the two last ). That is, up until the 4th quarter which has seen the best performance in the presidential cycle (Shown in the image below)

We also have explained the Stock market performance after the elections here >>

https://www.quantifiedstrategies.com/president-election-cycles/