Rules for investing in presidential election years

Stock market historian, Yale Hirsch, developed a theory called the Presidential Election Cycle Theory, which proposed a set of correlations between stock market performance and the specific year of a president’s term. It’s based on the assumption that, in years one and two, the President is focusing on campaign promises, such as tax and social welfare issues, rather than the economy. Then, in year three, he begins to go into campaign mode, turning his attention to stimulating the economy through tools like tax cuts and job creation. 

From there, the theory suggests stock market trends are linked with the performance of the U.S. economy, which is influenced by the President’s agenda. If it were true, then the best year of the President’s term is the third, when he turns the full force of his focus on the economy. The theory then predicts stock market averages to fall slightly in presidential election years, but still perform better than the first half of the term. 

Use a combination of historic and current trends to plan your moves

According to this method of predicting stock market trends, you could assume that the market would be strong in presidential election years such as the current year, 2020, and you would then expect a dip in 2021, when the new president starts his term. Should you use this information to direct your private investing decisions? Unfortunately, it’s not that simple.

Recent history indicates that the theory did not prove accurate throughout the years when Bill Clinton, George H.W. Bush, and Barack Obama were president. During all of their terms, the stock market performance was stronger in the first half of their presidency than in years three and four. 

The rules for investing are predicated on a complex number of factors, including world economic conditions, interest rates, investor psychology, and weather. Politics do play a role, but mainly as a result of legislation passed in Congress vs. the President’s agenda. 

We study the markets

While it would be nice to assume there’s an easy way to predict stock market performance from year to year, the prudent approach is more complicated. When it comes to investing, whether in individual stocks or mutual funds, the best method is to work with professionals who study all of the factors listed above, and who have the training and experience necessary to help you make sound decisions on how to protect and grow your money safely.

The financial professionals at GYL offer individualized personal accounting services. This starts by gaining a comprehensive understanding of your financial picture, including income, expenses, future goals, and tax liabilities. Combined with knowledge of the current forces driving the market, they will advise you on investment options that best align with your financial goals. 

Contact GYL today to schedule a free consultation.