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Chicago, IL – January 10, 2024 – Today, Zacks Investment Ideas feature highlights S&P 500 (SPY - Free Report) .
Presidential Cycle Takes Center Stage as 2024 Election Ramps Up
The presidential election is heating up as Republican candidates are due to compete in the GOP primaries and caucuses this month. Former President Trump is leading in the early 2024 polls and remains the frontrunner for the nomination, setting up a potential rematch with President Biden. Democrats are expected to fall firmly behind Biden, who launched his reelection campaign early last year.
As momentum begins to build, a logical question for investors is: what does history say about stock market returns in election years? We can answer this question by examining a calendar anomaly known as the Presidential Cycle. Calendar anomalies are regular, exploitable patterns in the stock market that deviate from the norm. As we'll see, it's pretty amazing how closely President Biden's term has followed the historical patterns, albeit more drastic than average.
What can we expect during President Biden's fourth year in office?
The Presidential Election Cycle Theory
The Presidential Cycle is a theory devised by Yale Hirsch that suggests the stock market follows a pattern which correlates with a U.S. President's four-year term. The election cycle consists of the post-election, midterm, pre-election and election years. 2023 was an example of a pre-election year, or the third year in the 4-year presidential cycle; this year is the final year given it is an election year.
In the first 2 years after an election, unpopular measures become more frequent, putting pressure on share prices. The second year tends to be the weakest year of all 4 years, as the President continues attempting to fulfill campaign promises.
Hirsch discovered that wars, recessions, and bear markets tend to start in the first two years of a President's term. In 2022, the market entered the weak spot of the cycle. And with an aggressive Fed, high inflation, and the ongoing Russia-Ukraine war, the weakness in stocks was amplified.
Bear markets tend to put in a midterm year bottom sometime in the August-October timeframe just ahead of the midterm elections. Years 3 and 4 of the cycle tend to be more constructive, with the third year the strongest of them all. As we know, the market came roaring back to life in 2023, right on schedule with the typical pre-election year strength.
Stock performance normally improves in the latter half of the term as the President attempts to stimulate the economy, making voters feel more positive in an effort to get re-elected or keep the current party in power. The central bank, which is not completely independent, also seems to support the President in office through monetary policy in the second half. And sure enough, the odds of rate cuts have increased into 2024.
Election Years Tend to Be Bullish
Markets tend to climb higher in year 4 of a President's term. When we factor in that the fourth year of the Presidential Cycle has historically witnessed the second-best performance of all four years, the future looks bright in this new bull market. Under new Presidents, election years have witnessed an average return north of 12% going back to 1950.
Presidential incumbency is an influential phenomenon and considered to be a driving force behind the 4-year Presidential Election Cycle. The concept of a sitting President running for reelection is what has made the pre-election year the best year of the cycle and the election year the second-best. Dating back to 1950, the S&P 500 is up more than 12% on average in election years when a sitting President is running for reelection, versus about 7% in all election years. When there is an open field (meaning years with no incumbent running for a second term), the S&P 500 has averaged a -1.5% loss.
Adding to the bullish case, in cycles where we've experienced negative midterm years (as was the case in 2022), we've never had a lower election year since 1950. When midterm years are negative, election years rise 13.2% on average and tend to follow strong pre-election years (which did occur last year).
Final Thoughts
The Presidential Cycle shows us that we remain in the midst of a very favorable time. The stage is set for this rally to continue in 2024; the cycle shows us that stocks tend to climb higher in year 4 of a President's term. The fact that President Biden is running for re-election adds to the bullish case.
Positive themes such as decelerating inflation, lower treasury yields, and a less hawkish Fed all bode well for returns moving forward. A broadening out in terms of participation has led to other sectors outside of technology witnessing renewed strength; the improvement in market breadth is necessary to help sustain the new bull market.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: S&P 500
For Immediate Release
Chicago, IL – January 10, 2024 – Today, Zacks Investment Ideas feature highlights S&P 500 (SPY - Free Report) .
Presidential Cycle Takes Center Stage as 2024 Election Ramps Up
The presidential election is heating up as Republican candidates are due to compete in the GOP primaries and caucuses this month. Former President Trump is leading in the early 2024 polls and remains the frontrunner for the nomination, setting up a potential rematch with President Biden. Democrats are expected to fall firmly behind Biden, who launched his reelection campaign early last year.
As momentum begins to build, a logical question for investors is: what does history say about stock market returns in election years? We can answer this question by examining a calendar anomaly known as the Presidential Cycle. Calendar anomalies are regular, exploitable patterns in the stock market that deviate from the norm. As we'll see, it's pretty amazing how closely President Biden's term has followed the historical patterns, albeit more drastic than average.
What can we expect during President Biden's fourth year in office?
The Presidential Election Cycle Theory
The Presidential Cycle is a theory devised by Yale Hirsch that suggests the stock market follows a pattern which correlates with a U.S. President's four-year term. The election cycle consists of the post-election, midterm, pre-election and election years. 2023 was an example of a pre-election year, or the third year in the 4-year presidential cycle; this year is the final year given it is an election year.
In the first 2 years after an election, unpopular measures become more frequent, putting pressure on share prices. The second year tends to be the weakest year of all 4 years, as the President continues attempting to fulfill campaign promises.
Hirsch discovered that wars, recessions, and bear markets tend to start in the first two years of a President's term. In 2022, the market entered the weak spot of the cycle. And with an aggressive Fed, high inflation, and the ongoing Russia-Ukraine war, the weakness in stocks was amplified.
Bear markets tend to put in a midterm year bottom sometime in the August-October timeframe just ahead of the midterm elections. Years 3 and 4 of the cycle tend to be more constructive, with the third year the strongest of them all. As we know, the market came roaring back to life in 2023, right on schedule with the typical pre-election year strength.
Stock performance normally improves in the latter half of the term as the President attempts to stimulate the economy, making voters feel more positive in an effort to get re-elected or keep the current party in power. The central bank, which is not completely independent, also seems to support the President in office through monetary policy in the second half. And sure enough, the odds of rate cuts have increased into 2024.
Election Years Tend to Be Bullish
Markets tend to climb higher in year 4 of a President's term. When we factor in that the fourth year of the Presidential Cycle has historically witnessed the second-best performance of all four years, the future looks bright in this new bull market. Under new Presidents, election years have witnessed an average return north of 12% going back to 1950.
Presidential incumbency is an influential phenomenon and considered to be a driving force behind the 4-year Presidential Election Cycle. The concept of a sitting President running for reelection is what has made the pre-election year the best year of the cycle and the election year the second-best. Dating back to 1950, the S&P 500 is up more than 12% on average in election years when a sitting President is running for reelection, versus about 7% in all election years. When there is an open field (meaning years with no incumbent running for a second term), the S&P 500 has averaged a -1.5% loss.
Adding to the bullish case, in cycles where we've experienced negative midterm years (as was the case in 2022), we've never had a lower election year since 1950. When midterm years are negative, election years rise 13.2% on average and tend to follow strong pre-election years (which did occur last year).
Final Thoughts
The Presidential Cycle shows us that we remain in the midst of a very favorable time. The stage is set for this rally to continue in 2024; the cycle shows us that stocks tend to climb higher in year 4 of a President's term. The fact that President Biden is running for re-election adds to the bullish case.
Positive themes such as decelerating inflation, lower treasury yields, and a less hawkish Fed all bode well for returns moving forward. A broadening out in terms of participation has led to other sectors outside of technology witnessing renewed strength; the improvement in market breadth is necessary to help sustain the new bull market.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.