By Sam van de Schootbrugge 26-08-2020

US Elections And Stock Market Performance

(11 min read)
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With the US presidential elections a little over two months away, what can we infer from the existing body of literature around US presidential elections and stock market performance? I’ve distilled some of the thoughts of academics, influential finance experts and leading political research organisations below.

Presidential Cycles

The US presidential cycle refers to a four-year period during which stock prices tend to fall in the first half of the presidency, reach the lowest point in the second year, rise again during the second half of the second year, and reach the peak in the third and fourth years (Gartner and Wellershoff, 1995).

Chart 1 uses data from the S&P 500 and DJIA going back to 1789. On the left (red) we see evidence that shows a consistent pattern in which the first two years of a presidential term have tended to produce below-average returns, while the last two years have been above average.

Looking over a shorter time span, and focusing on just DJIA data, does not remove the presence of a presidential cycle. Since 1833, the Dow Jones industrial average has gained an average of 10.4% in the year before a presidential election, and nearly 6%, on average, in the election year. By contrast, the first and second years of a president’s term see average gains of 2.5% and 4.2%, respectively (Kiplinger, 2016).

Indeed, Nickles (2004) says the following: ‘buying on 1 October of the second year of the presidential election term and selling out on December 31 of year four is a strategy that would have sidestepped practically all down markets for the last 60 years.’


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