Do elections influence the markets?

Do election years influence the stock market? The Presidential cycle chart below, courtesy of Dogs of the Dow, suggests that election years can be volatile in the first half, and bullish in the second half.

pres-cycle

The chart I’ve presented below depicts the S&P 500 since 1996. I have circled the autumn periods for election years 1996, 2000, 2004, 2008, 2012. Each autumn period there was a correction – but I wouldn’t suggest these selloffs were more aggressive than traditional corrective activity – particularly when comparing those corrections to others that occurred during the seasonally weak Sept/October months.

election-years

The next chart, courtesy of equityclock, shows us that there does appear to be some negative influence in election years during September and October on the markets (blue line).  Second term elections (red line) in particular are most susceptible to downward pressure. We are not in a second term electoral period for this election.

election

 

Seasonality, presidential cycle, and a bit of froth on current markets suggest a reasonable potential for downward pressure in the coming weeks. According to both seasonal and electoral patterns, markets can move nicely after the November election. I expect to use any negative movements as an opportunity to buy high quality stocks in the coming weeks.

 

Keith on BNN

I’m on BNN’s MarketCall this Wedensday October 5th at 6:00pm.

BNN studio

 

4 Comments

  • Hi Keith,

    Nice sell off in precious metals this morning. Are you looking at this sector these days?

    Thanks,
    Parm

    Reply
    • I hold a position in silver. It broke support today–now I count 3 days. If it stays below $18.50-I’m out. so far I’m down about 3-4% – but I must wait the 3 days before making a call to sell or hold. That’s the discipline.
      I wouldn’t buy until clarity develops.

      Reply
  • Regarding the red line in the equityClock chart, does it not refer to the election after a two term president? If that is the case, this election is definitely one of those.

    Thanks for your insights!
    Geoff

    Reply
    • yes–second term president–although this is an election based on first termed “newcomers”

      Reply

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