Download the Schwab app from iTunes®Get the AppClose

  • Find a branch
  • Chat
To expand the menu panel use the down arrow key. Use Tab to navigate through submenu items.

Print
On Stocks

How Do Stocks Perform During the Presidential Election Cycle?

There’s no way to predict the future, but we did have our experts look at data over the last 66 years, and they made some interesting discoveries that traders may want to consider in the months and years ahead.

1

With the presidential election approaching, you may already be wondering how the policies of the next commander-in-chief could affect the market. But what about the four-year “election cycle” between each Presidential election? Might there be correlations between how equity and sector performance correlate with the various years within that cycle? There’s no way to predict the future, but we did have our experts look at data over the last 66 years, and they made some interesting discoveries that traders may want to consider in the months and years ahead.

2
Equities In Election Years

Presidential election years have been mostly favorable ones for equities. Since 1950, the S&P 500 rose in 13 of the 16 election years, and posted an average return of 6.6%.
Source: Schwab Center for Financial Research with S&P 500 data from 1/1/1950 through 12/31/2015.

3
The First Year of a Term

The first year of a presidential term has historically been the toughest for stocks. Since 1950, the S&P 500 has closed in the red seven of the 16 “first years.”
Source: Schwab Center for Financial Research with S&P 500 data from 1/1/1950 through 12/31/2015.

4
The Power of the Third Year

The third year in an election cycle is the one prior to an election year. Since 1950, the S&P 500 has had an average return of 16.4% in “third years,” with 15 of these 17 “third years” closing in the black.
Source: Schwab Center for Financial Research with S&P 500 data from 1/1/1950 through 12/31/2015.

5
Strong Sectors

Some sectors can thrive depending on the year in a cycle. Since 1992, the financial sector has been the top performer during election years, followed by utilities.
Source: Strategas Research Partners using data from 1/1/1992 through 12/31/2014.

6
Here’s A Theory

Why have the markets tended to perform better as an election nears? A common theory is that politicians generally try to make the economy appear favorable as an election nears, reflected in the markets by higher stock prices. By the same token, it is thought that potentially painful actions or legislation, taken as soon as possible after an election, could help a politician achieve the desired result—while making any painful consequences a distant memory—by the time the next election rolls around.

   Was this helpful?  

More Like This

Schwab has tools to help you mentally prepare for trading

Talk trading with a Schwab specialist anytime.
Call 888-245-6864
M-F, 8:30am - 9:00pm EST
Earn 500 commission-free online trades, plus check-ins with a trading coach—all for an entire year.

Important Disclosures