Election Year A Bullish Sign? Maybe Not

Contrary to popular belief, Mark Hulbert says the notion that stock market returns are strong in the years of presidential elections is wrong.

In a recent MarketWatch column, Hulbert comes to that conclusion after examining the Presidential Election Year Cycle. “The implication of this theory is that, immediately after assuming office, presidents swallow whatever economic medicine is necessary, in order to set the stage for the recovery and economic good times that, come the next election, will convince voters with only short-term memories that happy days are here to stay,” he writes. That, he says, would mean that stock returns tend to be better in the second half of a president’s term than the first half. And, he says, that’s true — but “it turns out that second-half strength is almost entirely concentrated in the third years of the cycle.”

In his analysis, Hulbert looked at Dow Jones Industrial Average returns going back to 1932, which, he says, is around the point at which the federal budget became large enough that a president could impact economic cycles. He also used fiscal years (which begin on Oct. 1) rather than calendar years. He found that the fourth-year returns differed insignificantly from the overall returns for the entire period.

The bottom line, according to Hulbert: “The stock market could still produce an impressive return over the next year. The lesson of the data is just that, if the market does do so, it won’t be caused by this coming year being the fourth of President Obama’s term.”