There are just four months until election day, and the presidential campaign rages on.
Some market historians have noted that there are some distinct patterns when it comes to elections and stocks. Specifically, many remind us that election years tend to be good ones for stocks.
Are these correlations totally spurious?
"No," argue many experts. Goldman Sachs' Jose Ursua, Professor Robert Prechter, and S&P Capital IQ's Sam Stovall are among the experts who argue that election cycles have major economic and behavioral implications for the stock markets.
We compiled everything we've heard about the relationship between stocks and politics. Maybe, you'll find it to be a useful guide to the stock market. And perhaps even the election.
The 3rd year of a Presidency is usually the best
On average, the third year of a presidency is by far the best year for stocks, with double digit returns.
That's not to say it's always the best year. "However, as can be remembered vividly, this approach did not work at all in 2008," warns Citi's Tobias Levkovich.
Source: Citigroup
Stock market volatility spikes in the 2nd year, then levels off
From Goldman Sachs' Jose Ursua: "Volatility often sees a first post-election blip (as markets digest changes) and then a gradual increase towards the second year of the cycle."
Source: Goldman Sachs
Even non-U.S. markets are better explained when considering US election-related variables
U.S. election cycles explain more than just U.S. equity returns. From Goldman Sachs' Jose Ursua: "In particular, the election cycle in the US helps to explain a sizable fraction of non-US equity returns, both in other developed markets and in emerging markets."
Source: Goldman Sachs
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