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.

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.

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.

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.