How Elections Influence the Markets

“One of our favorite cycle tools for many years is the Presidential Cycle Pattern.  I first started writingabout this topic back in 1994, and have used it extensively for both macro and micro analysis in our newsletter and our Daily Edition.

The basic idea is that there is a relationship between the political calendar and the movements of the stock market.  Since the U.S. has a regular 4-year election cycle dictated by the Constitution, we can examine the behavior of each four year period to find similarities and differences.

I do this by taking the SP500 data and chopping it up into 4-year chunks of time.  I prefer to use Nov. 1 of election years as the start point rather than January 1, since the market tends to react to whoever gets elected as soon as the results are known.  Usually that is right away (the hanging chads episode of 2000 was a rare exception).”

Full article