Stats › Seasonality and calendar › Election cycle
The presidential election cycle
The idea is simple enough. A US president serves four years, and the theory says the stock market behaves differently depending on which of those four years you happen to be in. Unpopular decisions early in the term, stimulus late, and the economy timed to look its best when voters are paying attention. Whether you find that story plausible or not, the pattern is measurable, so it can be checked.
This page has the averages. What the Dow has done in each year of the term since 1896, which year stands out, and the post war version of the same figures that a lot of people quote instead. Year three is the one that separates itself from the pack, at about 10.2% against roughly 3% for the year straight after an election, and it does so by enough to be worth a proper look. The theory behind it, that an administration front loads the painful policy and back loads the stimulus, at least has the virtue of being checkable.
I've also given the sample size problem a section of its own, because it decides how much weight any of this deserves and almost nobody bothers to mention it. About thirty complete cycles since 1896. That's the whole basis. Both sources are linked below with what they cover and when I read them, and my honest suggestion is to read the caveat section before the chart rather than after it.
Averaged on the Dow since 1896, the four year presidential cycle has produced roughly +3% in the post election year, +4% in the midterm year, +10.2% in the pre election year and +6% in the election year. Year three is the standout and holds up in sub periods: from 1943 to 2020 both the Dow and the S&P 500 averaged about +15% in year three. The catch is the sample. Since 1896 there have been only about thirty complete cycles, so a handful of years drive the entire result.
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Below this point there are 6 sections, 1 chart and 2 named sources, roughly 1200 words of it. Every figure carries the source it came from and the date the data is from.
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