Q:
A:
A:
A forum for communicating information about the management of assets
can I expect during a Presidential
Q: What
Election year?
In the United States, every four years a presidential election comes around. It hardly
seems like the President takes the Oath of Office and we begin the process all over
again. Investors always seem to be looking for a link between every day events and the
stock market. According to James Stack of InvesTech Research, there has been an
obvious link between the Presidential Election Cycle and Wall Street for some time.
If you think about it, this relationship makes sense as voter approval is largely based
on the state of the economy.
One of the best examples of stock market cycles is the effect the four-year presidential
election has on the stock market. Since 1928, the stock market has risen almost every
election year except for 1940, 2000 and 2008 (ValueLine, “Investing in an Election Year”).
Politicians know that once elected it makes sense to get the bad news and bear
markets out of the way. That way, the economy and the stock market can get back on
track and be moving along in a positive direction when it comes time for re-election.
You rarely see administrations passing controversial legislation once the Presidential
campaigns begin (InvesTech Research, January 20, 2012).
Capstone
Wealth Management
Mark D. Thomas
1500 Poly Drive, # 107
Billings, Montana 59102
406-259-4939
www.capstoneretire.com
If you have questions that
you think would be
interesting for our readers,
please call Kerrie at
406-259-4939 or email
your questions to
[email protected].
Since 1941, the first two years after a Presidential Election have the lowest
performance, with average annual gains less than 5.5%. Year 3, as politicians begin
getting ready for re-election, is an average gain of 17.3%. It more than doubles the
return of the other three years. Presidential Election years tend to be more moderate,
but historically are still the second most profitable in the cycle. Before the 2008
financial crisis, the average annual gain for election years was 8.9%. Since 1900, twothirds of the election years showed a positive return, while years with major losses
were rare. It can also be noted that the market often rallies in the second half of the
year (InvesTech Research, January 20, 2012).
So what can we expect in 2012? Historically speaking, we should expect a positive
return this year; however, it is important to remember that there are other factors that
are currently affecting the stock market, such as concern surrounding the US deficit,
European debt woes and deflationary pressures on fragile economies around the
world. We believe the best plan of action is to maintain a diversified portfolio
designed to meet your goals and fits within your risk tolerance.