The Little Book of Stock Market Cycles by Jeffrey A. Hirsch

Author:Jeffrey A. Hirsch
Language: eng
Format: epub
Publisher: John Wiley & Sons, Ltd.
Published: 2012-07-02T16:00:00+00:00

Incumbent Victories versus Incumbent Defeats

Since 1944, stocks have tended to move up earlier when White House occupants are popular but do even better in November and December when unpopular administrations are ousted (see Figure 5.3).

Figure 5.3 Trend of S&P 500 Index in Election Years 1944−2008

March, June, October, and December are best when incumbents stay in power, while July is worst. January, February, September, and October are the worst when they are removed. Ironically, November is best when incumbents are ousted and second worst when they win.

Other interesting tidbits: There were no major losses in October (1984 off fractionally) and only one in June and December when incumbent parties retained the White House. Republican wins in November resulted in total gains of 23.6 percent (excluding no-decision 2000). Democratic victories produced total losses of 4.9 percent in November; however, Democrats “gained” 16.4 percent in December, the Republicans 7.9 percent.

At a Glance

Politics and elections have a clear impact on markets. Wars and unpopular policies usually occur in the first or second year of a presidential term, frequently triggering bear markets. From the post-election year high to the midterm low, the Dow has lost 20.9 percent on average since 1913.

But by the third year, preelection year, the administration’s focus shifts to “priming the pump.” Policies are enacted to improve the economic well-being of the country and its electorate. From the midterm low to the preelection year high, the Dow has gained nearly 50 percent on average since 1914.

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