By Arthur Levin
As we close in on the end of 2014, we were reminded that 2015 is the third year of a presidential term, making it a pre-election year, which has historically been a strong year for the market in terms of positive equity returns. Based off of observations from some previous Presidential Election studies and comments made by Jeremy Grantham, co-founder and chief investment strategist of Grantham Mayo van Otterloo (GMO), on “Presidential Election Cycles”, we wanted revisit this subject as it relates to the stock market and look at the precedence that have been witnessed over the years.
To get an idea of the type of precedent that has been set during pre-presidential election years, we can look back to the performance trends over the past 181 years now, including 2011. During this time period, the pre-election presidential year produced a positive return in the stock market, as defined by the Dow Jones Industrial Average [DJIA], which rose 5.53% in 2011. One of the major resources that we use when looking at the presidential election year data is a function of the studying and data compiled by Jeffrey A. Hirsch & Yale Hirsch in their yearly installment of the Stock Trader’s Almanac.
The Stock Trader’s Almanac data, includes the 4-Year Cycle returns beginning with the first full year of a particular President’s cycle, going back to 1833. As we mentioned above, pre-election years have historically been a positive time for the market, especially over the past century. As a matter of fact, the last time that the market was down during a pre-presidential year was in 1939. Of the 4-Year Cycle, the pre-election years have historically been the best performing year. On average, the pre-election year has seen a 10.43% gain since 1833, so 2011 was surely under average in its performance with returns only half as much as the average. So, generally speaking, the year before the presidential election and even the actual presidential election years are historically positive for the stock market.
Past performance is not a guarantee of future performance. This article was written by Dorsey, Wright and Associates, Inc., and provided to you by Wells Fargo Advisors and Arthur Levin, Financial Advisor in Beaufort, SC, 211 Scott Street, (843) 524-1114. You cannot directly invest in an index. Wells Fargo Advisors did not assist in the preparation of this article, and its accuracy and completeness are not guaranteed. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.