It’s Wall Street’s favorite year of the presidential cycle

Feb 2, 2023, 6:10 AM | Updated: 7:14 am

NEW YORK (AP) — You may be sick of politics, but Wall Street is just getting to its favorite part of the presidential calendar.

The third year of the presidential cycle has historically been the best for the stock market. Going back to the start of 1945, the S&P 500 has risen an average of 15.9% during the last full year before an election, compared with an overall average of 9.2% for every year.

Most of that better-than-usual performance is packed into the first half of Year 3, according to data from CFRA Research. In the first three months of Year 3, for example, the S&P 500 has historically climbed an average of 6.9%, which is more than triple the 2.1% average for every first quarter over that span.

One line of thinking says Wall Street rises in anticipation of the White House passing economically popular measures in hopes of staying in office. The difference could also just be statistical luck. But it’s happened enough that professional investors pay at least some attention to it, even if not all the candidates running in 2024 are known yet.

The last time a president was in Year 3, in 2019 under Donald Trump, the S&P 500 soared nearly 29%.

This year, there may be less appetite for big government programs that could stimulate the economy, because they could also potentially ignite inflationary pressures.

Averages also only tell part of the story. Across 23 completed four-year terms since 1925, the S&P 500 gain in Year 3 was the best seven times according to Doug Ramsey, chief investment officer at Leuthold Group — better than random, but not by much.

The last time a first-term Democratic president was in Year 3, as Joe Biden is now, was in 2011 under Barack Obama. That time, the S&P 500 ended the year virtually flat. Much of that was because of a steep tumble in the summer, triggered by worries about the European debt crisis and the downgrade of the U.S. debt rating by Standard & Poor’s.

“That was one of the few times where we really had nothing,” said Sam Stovall, chief investment strategist at CFRA Research. “Investors usually expect the president to try to ensure that he gets reelected by stimulating the economy.”

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It’s Wall Street’s favorite year of the presidential cycle