Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

How Do Markets Perform During Election Years?

Republicans have ridden the candidate carousel over the past few months but eventually one GOP contender will emerge to face President Obama in the much anticipated 2012 Presidential Election. As political experts predict a democratic or republican win, another group of pundits, market experts, will guess on how stocks will perform in 2012.

But you don’t have to rely on guesses; Yale and Jeffrey Hirsch from The Stock Trader’s Almanac have scrutinized the performance of the Dow Jones Industrial Average over 177 years of presidential cycles. Beginning with Andrew Jackson in 1829, election years have averaged a 5.8 percent gain in stocks. In fact, 29 out of those 44 election years have resulted in gains for the Dow.*

The Dow’s long history going back to 1833 paints a clear historical trend: “Wars, recessions, and bear markets tend to start or occur in the first half of the term; prosperous times and bull markets, in the latter half,” The Stock Trader’s Almanac says.

We looked into the performance of the S&P 500 Index since Dwight Eisenhower took over the Oval Office in 1953. We discovered that the S&P 500 has historically remained flat over the first two years of a presidential cycle as new administrations take shape and second-term leaders reshuffle their team and set priorities. Over the next two years, the market turned markedly higher.

As the blue line shows below, the government’s massive stimulus effort to revive a struggling U.S. economy has steered the S&P 500 away from the long-term trend during President Obama’s term. The market sold off as America was introduced to President Obama before reversing course in grand fashion in March 2009. While it’s certainly been a roller coaster ride for investors over the past three years, the S&P rose significantly higher at the same time as the long-term historical trend.

The Presidential Cycle: How Does President Obama Compare?

What will happen to the market if the GOP is able to oust the incumbent? Nearly out of stimulus ammo, will we see a similar pattern if President Obama is re-elected?

Tune in to our January 10 webcast with Jeffrey Hirsch to find out. We’ll discuss historical market cycles like these as well as what’s in store for investors this election year.

Make sure to register today. If you can’t make the live presentation, it will be made available for you to watch on demand shortly after the webcast ends.

Register Today

Past performance is no guarantee of future results.

*Based on annual close; prior to 1886, the data is based on Cowles and other indices: 12 mixed stocks, 10 rails, 2 inds 1886-1889; 20 mixed stocks, 18 rails, 2 inds 1890-1896; Railroad average 1897. First industrial average was published 5/26/1896.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.