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TRADING TECHNIQUES
Seasonality And The
Presidential Election Cycle
by Mark Vakkur, M.D.
Can you combine politics with seasonality? With the Presidential election coming up, here's a review of some trading strategies for the stock market built around this event.
"The quadrennial Presidential election-year cycle has a profound influence on the stock market. Stocks tend to advance most strongly during the year immediately preceding and the year of the election, but only tread water during the other two years of the four-year cycle. How, then, might a trader incorporate this phenomenon into a trading system and combine politics with seasonality?"
FIGURE 2: 100% invested during preelection/election years. Here are the results of investing 100% in the S&P 500 during preelection and election years only, then moving 100% to cash (90-day Treasury bills) during postelection and midterm years, 1950-95.
"What is clear is that the preelection and election years vastly outperform the other two years. The preelection year returns are more than double the average 0.74% monthly S&P 500 return. Election years are also superior, but less so, with an average return of 0.84%. What is noteworthy is that the market closed higher roughly two-thirds of the time in preelection or election years, but was worse than a coin flip in postelection years."
Excerpted from an article originally published in the October 1996 issue of Technical Analysis of STOCKS & COMMODITIES magazine.
© Copyright 1996, Technical Analysis, Inc. All rights reserved.
Return to Back Issue Archive or October Contents page.
 
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