Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

2011 The Third Year of the Presidential Stock Market Cycle!

Stock-Markets / Stock Markets 2011 Dec 18, 2010 - 05:33 AM GMT

By: Sy_Harding


Best Financial Markets Analysis ArticleThe history of the Four-Year Presidential Cycle is that the stock market tends to experience its worst corrections and bear markets in one or both of the first two years of a president’s term, and then be positive for the last two years of the term.

In fact, studies have shown that if investors were to stay out of the market for the first two years of each presidential term, and then buy and hold for the last two years they would substantially outperform the market over the long-term.

So, obviously the presidential cycle has a big influence on the stock market. Administrations of both parties tend to allow corrections of excesses to take place in the first two years of their terms, and then pull out all the stops with economic stimulus to make sure the economy and stock market are recovered and looking good when re-election time rolls around. That in turn usually results in the economy being overheated, and the stock market being over-valued again, and the cycle repeats, with the next administration then allowing those excesses to be corrected in the first two years of its term.

However, as the last four years have shown, there are sometimes exceptions in the shorter term. The 2007-2009 bear market began in the third year of the Bush administration and continued down through the fourth year, and the market has been up quite strongly for the first two years of the Obama administration.

The obvious question is whether the cycle has reversed this time. If the market was up for the first two years of the term will it be down over the last two years of this cycle?

The answer is that it’s not likely.

I studied the market going back to 1915. There were seven other instances when the market was up for both the first and second year of the cycle. It did not affect the history of the last two years of the cycle usually being positive. Only once was the market then down for the third year. That was in 1923, and the Dow was down only 3.2% for the year.

However, I also went back to 1900 to check out the market’s performance in the third year of the cycle regardless of what it did in the first two years, and found that third years of presidential terms were not impressive prior to World War II.

I count five times out of the first ten presidential cycles from 1903 to 1939, or 50% of the time, that the market was down in the third year of a president’s term. Two of the declines, in 1903 and 1907 were actually bear markets, with the market being down 22.4% and 37.7% respectively in those years. It was also down 53% in 1931, the third year of Herbert Hoover’s administration (during the severe 1929-32 bear market).

But all of those negative third years were prior to World War II, not in the post-1950 modern market era.

It can be misleading to only look at the market’s year-end levels to determine risk, as doing so does not take into account the corrections that can take place within a year.

For instance in 1987, the third year of President Reagan’s second term, the market was up 2.3% for the full year. Easy enough to buy and hold through?

Definitely not. The Dow reached a new record high in August of 1987. But it then topped out into a serious bear market that culminated in the October 1987 crash. In that three-month decline the Dow lost 36% of its value, and panic prevailed. Even Wall Street conceded that the market was probably headed lower, and that the similarity to the 1929 crash might result in the economy falling off a cliff into another Great Depression. There were probably few buy and hold investors left by the time the market instead recovered to close up 2.3% for the year.

So I also checked out the intra-year corrections within other years, and nothing like 1987 occurred in the third year of other administrations. With the exception of 1987, between 1943 and 2007 the short-term corrections within a third year averaged only 8.5%, with the worst being 16.1% (in 1971).

So, although it’s not quite the sure thing Wall Street is assuring us of, it is true that at least since 1940 the third year of the presidential cycle has always been a positive year with only relatively small ‘drawdowns’ in corrections during the year, with the exception of 1987.

That does not mean they are necessarily wildly positive. Some of the third years, while positive, were only marginally so, for instance 6.1% in 1971, 4.2% in 1979, 2.3% in 1987, 6.4% in 2007.

However, based solely on the Four Year Presidential Cycle it does look like 2011 should be a low-risk year, even though the first two years of the cycle were already quite positive.

Of course there is always the possibility other factors, maybe even the current high level of investor bullishness that may have already factored a positive 2011 into stock prices, will become a larger factor than the Presidential Cycle this time around, as happened in 1987. But whoever said that investing was easy? However, it’s usually easier when the odds presented by the Four-Year Presidential Cycle are in your favor.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website, and the free daily market blog,

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules