Since the beginning, investors do depend on the data and historical charts to predict future stock movements. This is due to the stock trends being cyclical. The question is: Can we always depend on past results to match future expectations? It is definitely true that the patterns of stock prices match, but we also have enough exceptions to prove that the past trends could be unexpected at times. And, the US presidential elections make no difference.
At first, one must recognize the various factors that influence the stock market during presidential elections while not forgetting about the key results governing the graph of the stocks. We have to consider, for example, who came into power, or if the candidate was chosen during the second election, or if a change of the parties has taken place. All these factors, among many others, shape the way the stock market reacts to and during presidential elections.
Considering both sides of the coin, one must not ignore the ground rule: these predictions may not hold true 100 percent. In fact, there are times when the predictions go completely haywire and end up creating new theories as well as offering different perspectives. In the meantime, investors must remain level-headed and never get too excited just because they believe themselves to have complete insight into how the market will react during these elections that happen every four years. After all, losing against some avoidable odds probably counts among the most disheartening experience.
US Presidential Elections Impacting Stock Market
Several theories and studies have been conducted since the stock market has shown significant shifts around the presidential elections. And, this observation has helped investors to develop more clarified and well-sought out projections.
The theory of the ‘Presidential Election Cycle’ was proposed by the man behind the Stock Trader’s Almanac, Yale Hirsch. The study was carried on by Marshall Nickles, the Pepperdine professor who presented a profitable strategy considering historical patterns. He proposed to invest during the second presidential year (on Oct 1st) and sell in the fourth year of the presidential term (on December 31st).
Moreover, the S&P 500 market results confirmed these patterns for the majority of the time. Among the 22 elections that occurred after the S&P 500 index was launched, 18 of these elections showed positive performance.
The Fine Line Differentiating Projections from Reality
As mentioned, predictions have given investors an indication for positive returns. However, we have to be aware of the fact that these projections could turn out wrong as well. There have been times when the predictions failed to hold true which also reflected in the S&P 500 index. Although there were 18 elections among 22 that showed a positive market growth, four elections still failed to comply with the trend.
This signifies that the market remains unpredictable and that unexpected elements might work against our interests sometimes. Apart from the data patterns, the assumptions could also act out differently at times. For instance, in this case, experts assume that the first year of the presidential term will show the elected candidate making efforts to fulfil the promises made during the election campaign. This is the foundation of market strength.
However, the next two years will focus on strengthening the economy through results, multiplying the growth. Hence, encouraging investors to buy during the second year of the term and selling in the fourth year.
But does this hold true every time? Not at all. That much is for sure.
Conclusion
In terms of stock investments, nothing is guaranteed. Although it might be useful to look back at the history and dig up some facts about the ways the stock market behaved during the presidential elections, it is not advisable to completely rely on these numbers. After all, there are other factors that impact the market trend as well. Therefore, investments should be made carefully while considering predictions to support one’s decisions, yet avoiding to solely depend on them.
