Friday, February 26, 2016



The idea that election years are always good for U.S. stocks is wrong, and investors who are waiting for the power of the election to turn the market around this year need to recognize that they could be in for disappointment and pain.

Since 1920, the eighth years of presidential terms have represented the worst of election years. While the Dow Jones Industrial Average  has posted an average gain of 4.8% in election years since then, the last year of a two-term presidency has been down an average of almost 14% on the Dow and about 11% for the S&P 500, with losses in five of the last six times a two-term president was finishing up.

In fact, with the recent history of two-term presidents and their final year in office, the fourth year of the election cycle has been worst, on average, for the Dow dating back to 1941.

In other words, investors haven't had the kind of experience they assume happens in election years, meaning they should have even less confidence that there will be any election protection for the market in 2016.

In short, Election years ain't what they used to be.

And if you believe that past is prologue when it comes to election years, consider this statistic: In the last 16 presidential election years, 14 full years followed the direction of the first five trading days of the year. The first five trading days of 2016, of course, represented the worst opening week in stock-market history.

If you don't want to use a time frame as short as a week as an indicator, then consider that in 75 percent of those last 16 election years, the market finished the year moving in the same direction as it started for the month of January. January 2016 also was down. All of this is particularly true this year, when the election scenario is anything but ordinary.

In many election years, the ultimate candidates are obvious by the time the Iowa caucuses are over, but the current election has enough possibilities that the market hasn't yet factored in just which candidates ultimately have the inside track to the White House. The market has ignored Donald Trump, presumably waiting for him to win something besides a poll. At some point, however, the potential for a candidate to actually win office and effect the market will factor into the daily market volatility.

And at this point the market is not really enamored by any of the prospects for the next resident of the White House. Anyone who thinks that this election year means up markets could be in for significant disappointment both in politics and in their portfolio.

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