Myth: the market always goes up in a presidential election year
The reasoning behind this myth is that the politicians don't want investors upset going to the polls in November. Sounds plausible—if you believe presidential administrations have some sort of control over the markets. Actually, this myth may have a kernel of truth because of two things: the Federal Reserve has shown it is not shy about influencing, some might say supporting or interfering with, the markets; and yes, each administration would love to have its party win the White House.
The problem is that the numbers just don't support the myth. Looking at Standard and Poor's Composite Stock Price index dating back to 1872, as reported Robert Shiller's Irrational Exuberance, presidential election years have the lowest median annual rate of return of all four years of a presidency. The third year is typically the best year for market performance, returning a little more than double the fourth year's median return.
Myth: If the current administration is Republican/Democrat (take your pick) during the Presidential election year, the market will go up.
This may be more about political leanings than actual data. The S&P Composite index shows a slight advantage with Republican presidents sitting in the Oval Office in election years. Since 1872, there have been market gains in presidential election years for 11 sitting GOP presidents and seven for Democrats. But when the Republicans were in the White House, the market dropped five times during the election year—and two of the worst plummets were under Herbert Hoover in 1932 and George W. Bush in 2008. The market dropped four times when Democrats were in office.
For the complete article please visit
Kiplinger's
