From 1833 to 2012, the stock market has on average rallied 1.9 percent in the first year of a president’s term, 4.2 percent in year two and 5.8 percent in the fourth year. Year three is the biggest, and has a return of 10.4 percent market gain in the Dow Jones Industrial average (Dow Jones Global Indexes: .DJI). The only year this didn’t occur was in 1931, the height of the Great Depression. “It’s not just that the market tends to rise during the year before a presidential election. It’s the consistency of this pattern that is so impressive,” said the “Mad Money” host.
I guess it’s time to remind you, once again, that this type of analysis should have no place in financial market. Especially if you are interested in making money. Presidential cycles, years ending in 5, etc…..it’s a fools game. The stock market is a much more complex entity and the second you think you have got it it figured out, it changes. By design. In other words, this sort of simple analysis works only until it backfires, big time.
According to the Presidential Cycle tracked by Dana Lyons, the US Equities are about to get clobbered. According to him “Historically, the worst 2-quarter stretch of the presidential cycle is the period spanning the 2nd and 3rd quarters of the second year of a President’s Term. This stretch begins on April 1.” On average, delivering a stunning loss of 1%.
After doing a tremendous amount of research into the stock market composition there is no such thing as the Presidential Cycle. There are cycles that might or might not correlate with the presidential cycle, but overall fundamental developments do not impact final cyclical composition of the market. With that said, our mathematical work confirms that the next 2 quarters will not be pretty. Presidential cycle or not. In fact, the bear market of 2014-2017 is scheduled to kick off fairly soon. If you would like to know exactly when the bear market of 2014-2017 will start (to the day) and it’s internal composition, please Click Here.
Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!
Dana Lyons is senior vice president at J. Lyons Fund Management in Deerfield, Illinois and the architect of its Relative Strength Fund. He earned a Bachelor of Science degree in Economics from the Wharton School of Business at the University of Pennsylvania. Follow Dana on Twitter > @JLyonsFundMgmt.
The Presidential Cycle refers to the pattern of behavior in stock prices throughout the four years of a presidential term. While there are many factors influencing stock prices during a particular period of a particular presidential term, it is one of the more historically consistent seasonal patterns. Specifically, stocks tend to be strong during certain periods of a president’s term and weaker during others. Historically, the worst 2-quarter stretch of the presidential cycle is the period spanning the 2nd and 3rd quarters of the second year of a President’s Term. This stretch begins on April 1.
.
Over the past 100 years, the average return in the Dow Jones Industrial Average for the 2-quarter stretch ending with the 3rd quarter of year 2 of the presidential cycle is minus 1%. Not only is that much weaker than the average return of all 2-quarter periods of 3.5%, it is the only 2-quarter stretch of the entire cycle that is materially negative on average.
There is hope for the bulls, however. First, since there are many factors besides the presidential cycle that affect stock prices, it should only be treated as a gentle headwind. Second, if last year is any guide, the current bull market may be capable of overcoming the historical tendency for weakness over the upcoming two quarters.
