{"id":3048,"date":"2016-01-06T21:57:52","date_gmt":"2016-01-07T02:57:52","guid":{"rendered":"http:\/\/162.223.13.186\/~zacksim\/your-blog-post-title-here-stocks-and-election-years-worrisome-or-welcoming\/"},"modified":"2022-02-27T17:58:36","modified_gmt":"2022-02-27T17:58:36","slug":"your-blog-post-title-here-stocks-and-election-years-worrisome-or-welcoming","status":"publish","type":"post","link":"https:\/\/zacksim.com\/financial-professionals-insights\/your-blog-post-title-here-stocks-and-election-years-worrisome-or-welcoming\/","title":{"rendered":"Stocks and Election Years \u2013 Worrisome or Welcoming?"},"content":{"rendered":"

The stock market is chock-full of patterns and theories that drive investment decisions like \u201csell-in-May-and-go-away,\u201d the \u201cSanta Claus rally,\u201d and so on. Another popular pattern theory relates to how stocks perform during an election cycle. With the presidential election coming this year, it\u2019s worth taking a look at how stocks have done historically in the fourth year of a president\u2019s term.<\/p>\n

Election Year Background<\/strong><\/p>\n

In \u201ctheory,\u201d the year following an election year is the weakest for stock market performance. In my view, it makes sense why \u2013 it is typically the one where the sitting president is most aggressive about policy setting. The result is that markets get agitated when there\u2019s a higher probability of regulatory, tax or property rights rules changing.<\/p>\n

But, as a president moves deeper into their term, the likelihood of passing big, sweeping legislation falls. Congressional seats of the president\u2019s party are historically lost in the back half of the term and Congress has been known to stalemate on many big issues \u2013 pushing them off to the next president\u2019s first term. It\u2019s what we\u2019re seeing now.<\/p>\n

It follows that, historically, stock performance has been the strongest in the third year of a president\u2019s term and above average in the fourth. Investors should not take this as an indicator that stocks are poised to do well this year \u2013 fundamental economic trends and corporate earnings still carry the most influence, in my view. But, the fact that it\u2019s a presidential election year should be taken as a net positive for the market\u2019s chances this year. It\u2019s another tailwind that isn\u2019t likely to work against the market.<\/p>\n

Indeed, in the last 22 election years there have only been only four where the S&P 500 index finished negative:<\/p>\n