STOCKS prior to Presidential election?
 

From past history, how does the stock market perform one year prior to Presidential elections?

Re: STOCKS prior to Presidential election?
 

Speaking of stocks, it appears to be another down day on Wall Street.

Re: STOCKS prior to Presidential election?
 

the stock market usually does very well the year before the election. There hasn't been a losing pre-election year since 1939 and many reference how the dow has averaged 50% from the low of the midterm year to the high of the pre-election year.

Re: STOCKS prior to Presidential election?
 

Forget the year before, what about the year of the election?

For example, for the timeframe JAN/08-NOV/08 what can we expect from past history?

Re: STOCKS prior to Presidential election?
 

http://finance.yahoo.com

http://www.wsj.com

Do some research, this isn't that hard. I'm not going to do it for you.

Re: STOCKS prior to Presidential election?
 

In the aggregate, 4 year presidential cycle (based on the Dow)...

Pre-Election year (3) > Election year (4) > Midterm year (2) > Post-Election year (1)

Re: STOCKS prior to Presidential election?
 

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In the aggregate, 4 year presidential cycle (based on the Dow)...

Pre-Election year (3) > Election year (4) > Midterm year (2) > Post-Election year (1)

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Beautiful, thanks.

Can this be confirmed by others?

Re: STOCKS prior to Presidential election?
 

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In the aggregate, 4 year presidential cycle (based on the Dow)...

Pre-Election year (3) > Election year (4) > Midterm year (2) > Post-Election year (1)

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Beautiful, thanks.

Can this be confirmed by others?

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For this and other interesting factoids about the market, pick up a copy of Hirch's Stock Trader's Almanac. Its published annually.

Re: STOCKS prior to Presidential election?
 

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In the aggregate, 4 year presidential cycle (based on the Dow)...

Pre-Election year (3) > Election year (4) > Midterm year (2) > Post-Election year (1)

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how strong was this relationship?

obviously i am in the camp that this is mostly datamining in that i dont think the presidential process has a large effect on the market (as it shouldn't). monetary policy & economic cycles, when they overlap with presidential cycles will be the driver and correlations are thus faulty (if you are thinking about causality for forward looking bets).

far more important things in my opinion than presidential cycles. (liquidity, risk aversion, global cycles etc. are some of the drivers, not US presidential elections)

Barron

Re: STOCKS prior to Presidential election?
 

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In the aggregate, 4 year presidential cycle (based on the Dow)...

Pre-Election year (3) > Election year (4) > Midterm year (2) > Post-Election year (1)

[/ QUOTE ]

how strong was this relationship?

obviously i am in the camp that this is mostly datamining in that i dont think the presidential process has a large effect on the market (as it shouldn't). monetary policy & economic cycles, when they overlap with presidential cycles will be the driver and correlations are thus faulty (if you are thinking about causality for forward looking bets).

far more important things in my opinion than presidential cycles. (liquidity, risk aversion, global cycles etc. are some of the drivers, not US presidential elections)

Barron

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I don't have the 2007 update, but since 1833, avg annual gain...
Post Election year: 1.6%
MidTerm year: 3.7%
Election year: 6.8%
Pre-Election year: 10.6%

"Presidential elections every four years have a profound impact on the economy and the stock market. Wars, recessions and bear markets tend to start or occur in the first half of the term; properous times and bull markets, in the latter half."

Interestingly, 8th years of "Decades" have historically also performed very well.

Disclaimer: Past performance, blah blah blah; but its still an interesting trend [img]/images/graemlins/wink.gif[/img]

Re: STOCKS prior to Presidential election?
 

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In the aggregate, 4 year presidential cycle (based on the Dow)...

Pre-Election year (3) > Election year (4) > Midterm year (2) > Post-Election year (1)

[/ QUOTE ]

how strong was this relationship?

obviously i am in the camp that this is mostly datamining in that i dont think the presidential process has a large effect on the market (as it shouldn't). monetary policy & economic cycles, when they overlap with presidential cycles will be the driver and correlations are thus faulty (if you are thinking about causality for forward looking bets).

far more important things in my opinion than presidential cycles. (liquidity, risk aversion, global cycles etc. are some of the drivers, not US presidential elections)

Barron

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I don't have the 2007 update, but since 1833, avg annual gain...
Post Election year: 1.6%
MidTerm year: 3.7%
Election year: 6.8%
Pre-Election year: 10.6%

"Presidential elections every four years have a profound impact on the economy and the stock market. Wars, recessions and bear markets tend to start or occur in the first half of the term; properous times and bull markets, in the latter half."

Interestingly, 8th years of "Decades" have historically also performed very well.

Disclaimer: Past performance, blah blah blah; but its still an interesting trend [img]/images/graemlins/wink.gif[/img]

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this is one of those things that makes me want to do some digging.

lots of questions i have now (which is good).

do you have a monthly return stream going back as far as monthly goes & annual back farther?

if not, do you have an annual return stream?

an interesting trend that means nothing really is that decades serve as VERY good deliniators of financial security performance. very odd how it works out like that but it doesn't mean that you should just trade at the end of decades.

the strength of the relationship isn't answered there though..just the magnitude (strength i mean statistical significance).

some initial thoughts:

it makes NO sense to me logically how it breaks out.

when does a president have the most power to change/direct etc. the economy? not during an election year! most likely during his (soon to also be "her" [img]/images/graemlins/wink.gif[/img] ) first year in office i'd think. the fact that the relationship's magnitude increases as the presidential's term nears an election is strange to me. unless of course there is a drag. that may make sense for economic performance (GDP etc.) but not security pricing since that tends to react faster than production stats etc. as expectations drive the pricing.

further, how does this relate to presidents who don't change. why should the market go from 10% to 2% from the 4th to the 5th year of a president who serves 2 terms.

i have a ton of questions i can think of but need the data to dig in.

lemme know if you have it [img]/images/graemlins/smile.gif[/img]

thanks,
Barron

Re: STOCKS prior to Presidential election?
 

A more important question. How does Iowa farmland perform in election years?

Re: STOCKS prior to Presidential election?
 

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it makes NO sense to me logically how it breaks out.

when does a president have the most power to change/direct etc. the economy? not during an election year!

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No direction is good direction, when presidents intervene in the economy it is more likely to harm stocks than help them, imo.

Re: STOCKS prior to Presidential election?
 

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it makes NO sense to me logically how it breaks out.

when does a president have the most power to change/direct etc. the economy? not during an election year!

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No direction is good direction, when presidents intervene in the economy it is more likely to harm stocks than help them, imo.

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not really. when are tax cuts are instituted, those with means put that extra money into the economy. thats just one example. those tax cuts (from my limited knowledge which is why i'd want to do some digging) tend to come in the first year and the mkts should respond to the expectation of increased demand for investments in stocks.

Barron

Re: STOCKS prior to Presidential election?
 

Thanks

Re: STOCKS prior to Presidential election?
 

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Thanks

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i didn't give you anything remotely close to an answer yet.

i need data!!

all we have now is questions.

Barron

Re: STOCKS prior to Presidential election?
 

Interest rate fears has pushed the DOW down triple digits again today.

Re: STOCKS prior to Presidential election?
 

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Interest rate fears has pushed the DOW down triple digits again today.

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but it's the year of the presidential election...therefore the dow MUST go up !

Barron

Re: STOCKS prior to Presidential election?
 

Let's hope not! [img]/images/graemlins/smile.gif[/img]

Re: STOCKS prior to Presidential election?
 

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Interest rate fears has pushed the DOW down triple digits again today.

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but it's the year of the presidential election...therefore the dow MUST go up !

Barron

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Let's not go too far now Barron... impressionable minds and all that...

Just because the avg is higher doesn't mean that its a slam dunk, the odds are good though [img]/images/graemlins/wink.gif[/img]

When I have a chance, I'll type up the full chart.

Re: STOCKS prior to Presidential election?
 

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Interest rate fears has pushed the DOW down triple digits again today.

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but it's the year of the presidential election...therefore the dow MUST go up !

Barron

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Let's not go too far now Barron... impressionable minds and all that...

Just because the avg is higher doesn't mean that its a slam dunk, the odds are good though [img]/images/graemlins/wink.gif[/img]

When I have a chance, I'll type up the full chart.

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if by chart you mean year + return and month + return where available then great !!

i'll get the presidential years all cued up.

Barron

Re: STOCKS prior to Presidential election?
 

Let's keep in mind that the DJIA is still on pace for approximently a 14% gain in 2007.......even after three straight heavy down days.

If the DJIA goes below 12750, then this market may be in more than just a "correction". Until if and when that happens, bears and bulls need to relax.

Re: STOCKS prior to Presidential election?
 

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some initial thoughts:

it makes NO sense to me logically how it breaks out.

when does a president have the most power to change/direct etc. the economy? not during an election year! most likely during his (soon to also be "her" [img]/images/graemlins/wink.gif[/img] ) first year in office i'd think. the fact that the relationship's magnitude increases as the presidential's term nears an election is strange to me. unless of course there is a drag. that may make sense for economic performance (GDP etc.) but not security pricing since that tends to react faster than production stats etc. as expectations drive the pricing.

further, how does this relate to presidents who don't change. why should the market go from 10% to 2% from the 4th to the 5th year of a president who serves 2 terms.

i have a ton of questions i can think of but need the data to dig in.

lemme know if you have it [img]/images/graemlins/smile.gif[/img]

thanks,
Barron

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Barron,

If this relationship holds, it's certainly due to investor irrationality as opposed to underlying fundamentals. Here is one way this may work: Assume that the market is forward-looking by about three years (as in, it cares most about the policies in the next three years). Further assume that 1) investors have different opinions as to what policies would be great for the market, and 2) investors are politically optimistic. This alone, without assuming anything else about the parties or the individual candidates, will cause investors to be more bullish earlier in the election cycle when there are more candidates, no well-defined policy platforms and no good way to gauge the probability of each candidate being elected.

Re: STOCKS prior to Presidential election?
 

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some initial thoughts:

it makes NO sense to me logically how it breaks out.

when does a president have the most power to change/direct etc. the economy? not during an election year! most likely during his (soon to also be "her" [img]/images/graemlins/wink.gif[/img] ) first year in office i'd think. the fact that the relationship's magnitude increases as the presidential's term nears an election is strange to me. unless of course there is a drag. that may make sense for economic performance (GDP etc.) but not security pricing since that tends to react faster than production stats etc. as expectations drive the pricing.

further, how does this relate to presidents who don't change. why should the market go from 10% to 2% from the 4th to the 5th year of a president who serves 2 terms.

i have a ton of questions i can think of but need the data to dig in.

lemme know if you have it [img]/images/graemlins/smile.gif[/img]

thanks,
Barron

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Barron,

If this relationship holds, it's certainly due to investor irrationality as opposed to underlying fundamentals.

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that isn't a reason not to trade based on a statistical relationship. if investors have proven to be irrational AND can be expected to CONTINUE to be similarly irrational, then you have a workable trade idea (many ideas past the first test but fail the 2nd test- think many academic papers you've read about stock performance)

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Here is one way this may work: Assume that the market is forward-looking by about three years (as in, it cares most about the policies in the next three years). Further assume that 1) investors have different opinions as to what policies would be great for the market, and 2) investors are politically optimistic. This alone, without assuming anything else about the parties or the individual candidates, will cause investors to be more bullish earlier in the election cycle when there are more candidates, no well-defined policy platforms and no good way to gauge the probability of each candidate being elected.

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given your assumptions, that explains the 10.6% return in pre-election years.

but it fails in the post-election year and also doesn't explain why the returns increase in the 2nd & 3rd year of a president's term.

off hand i think the relationship is specious but would be interesting to dig into. if i can get the data that sniper has or "is typing out" then i can do it in like 45 minutes.

Barron

Re: STOCKS prior to Presidential election?
 

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Barron,

If this relationship holds, it's certainly due to investor irrationality as opposed to underlying fundamentals.

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that isn't a reason not to trade based on a statistical relationship. if investors have proven to be irrational AND can be expected to CONTINUE to be similarly irrational, then you have a workable trade idea (many ideas past the first test but fail the 2nd test- think many academic papers you've read about stock performance)


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Agree 100% - didn't mean imply otherwise.

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Here is one way this may work: Assume that the market is forward-looking by about three years (as in, it cares most about the policies in the next three years). Further assume that 1) investors have different opinions as to what policies would be great for the market, and 2) investors are politically optimistic. This alone, without assuming anything else about the parties or the individual candidates, will cause investors to be more bullish earlier in the election cycle when there are more candidates, no well-defined policy platforms and no good way to gauge the probability of each candidate being elected.

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given your assumptions, that explains the 10.6% return in pre-election years.

but it fails in the post-election year and also doesn't explain why the returns increase in the 2nd & 3rd year of a president's term.


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How does it fail in the post election year? If you're looking, say, three years ahead, the post election year should provide for the least return since at the end of it 1) much of the uncertainty regarding policy has been resolved for the worse and 2) there's absolutely no uncertainty regarding who will lead the administration in the next three years. By the end of the midterm year, there's some hope already.

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off hand i think the relationship is specious but would be interesting to dig into. if i can get the data that sniper has or "is typing out" then i can do it in like 45 minutes.

Barron

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I'm not sure if I buy this either, but I think there's at least some plausibility to it.

Re: STOCKS prior to Presidential election?
 

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How does it [1.6% average returns of mkt] fail in the post election year? If you're looking, say, three years ahead, the post election year should provide for the least return since at the end of it 1) much of the uncertainty regarding policy has been resolved for the worse and 2) there's absolutely no uncertainty regarding who will lead the administration in the next three years. By the end of the midterm year, there's some hope already.


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first off you don't get paid based on uncertainty. i.e. your returns do not come from taking uncompensated risk like that. (developed world currencies are an exmaple. those are 0 sum)

theoretically, it may be that we know the president & his policies but there's still the issue of whether congress will comply (as a random example of a thought) we also don't know how wide the bands are around the 1.6% vs. the 10.6% in post election & pre election year. it could be that some huge returning year(s) contributed to the pre-election bonanza while there were some crashes or something in the lower returning year not related to presidential policies (this again isn't verified by me looking at overlapping return & presidential cycles...just an example of what could be going on)

imo you are simply fitting explanations to the data, rather than working the other way around. i did a similar thing but cautioned they are random guesses and can easily be proved wrong. you seem fairly attached to those explanations you've given.

when i say off-hand (i.e. w/o digging) it looks specious, this is what im talking about. the logic isn't there because 1) the assumptions you put forth don't make sense in that it isn't how the mkt operates and 2) the post-hoc fitting of logic to why those years should be like that is very dangerous thinking.

Barron