If we look at the S&P 500, we see that the first quarter of a pre-election year has been positive 17 out of 18 times since 1950, with the index rising by an average of +7.4%. This was also the best quarter of the entire four-year presidential cycle. On top of that, the second quarter has been quite good as well.
The pattern of the presidential cycle is generally like this: the first two years of the presidential term are the worst for the stock market, as this is when the least popular policies are adopted, while on the other hand, the last two years of the term are the best for the stock market, as this is when the most popular policies are adopted, simply because elections are approaching and they want to win votes.
Thus, the first and second years are the worst for the stock market, while the third and fourth are the best. Of all the years, the third would be the best. History tells us that the average performance of the S&P 500 since 1900 has been as follows:
- First presidential year: +6.82%.
- Second presidential year: +2.94%.
- Third presidential year: +11.84%.
- Fourth presidential year: +7.63%.
By the way, the biotech, industrial, and healthcare sectors tend to be favored under the Democrats. Pharmaceuticals and airlines tend to win when Republicans are elected.
