According to the presidential market cycle, we are entering the right time for investing because we are about to enter President Biden’s second half of his presidential term.
When you look at all market returns over the 47 presidential administrations since 1833, you find the first 2 years produced a total gain of 327%, while the last two years produced a gain of 772%. The 3rd year of presidential terms in particular that begins soon has been the best by far, with a 10.4% average gain in the Dow Jones Industrial Average. By comparison, the 4th year has had a 6% average gain, the second year a 4% gain and the first year a 3% gain. The S&P 500 Index does not go back as far as the Dow because it was created in the 1920s, but it shows the exact same pattern.
Of course, there have been exceptions to this pattern. But the 3rd year of almost every presidential term has been very good for investors since 1939, which was the 3rd year of Franklin Roosevelt’s second term in the White House. That year the Dow fell 2.9%. The one-time exception of this pattern in the subsequent seven decades was during year 3 of Barack Obama’s second term in office, when the Dow fell 2.2%.
There are very good reasons that history could repeat itself. First, a divided government is often good for stocks. Too much government spending helped runaway inflation. A Republican-controlled House of Representatives will likely squash any new spending plans introduced by the Democrats in charge. Second, the inflation might come down. This could mean the Fed can soon slow or even pause their campaign of raising interest rates soon.
So, if you have any faith in the presidential cycle concept, then right now is the time to get back into the market if you want to participate in that “3rd-year presidential cycle rise.
Sven Franssen