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Stock Market and the National Election Cycle

Posted in Calendar Effects, Political Indicators

Some stock market experts cite the year (1, 2, 3 or 4) of the U.S. presidential term cycle as a useful indicator of U.S. stock market returns. Game theory suggests that presidents deliver bad news immediately after being elected and do everything in their power to create good news just before ensuing biennial elections. Are some presidential term cycle years reliably good or bad? If so, are these abnormal returns concentrated in certain quarters? Finally, what does the stock market do in the period immediately before and after a national election? Using daily and monthly S&P 500 Index levels from January 1950 through August 2018 (nearly 69 years and about 17 presidential terms) and focusing on "political quarters" (Feb-Apr, May-Jul, Aug-Oct and Nov-Jan), we find that:

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