Presidential Election Cycle

Uploaded by : DreamGains Financials, Posted on : 17 Sep 2016


Cyclical cycles generally last 4 years, with bull and bear market phases lasting 1-3 years, while Secular cycles last about 30 years with bull and bear market phases lasting 10-20 years. The longer term Kondratiev cycles are two Secular cycles in length and last roughly 60 years. The end of the Kondratiev cycle is accompanied by economic troubles, such as the original Great Depression of the 1870’s; the Great Depression of the 1930’s and the current Great Recession.

Presidential Election Cycle theory is developed by Yale Hirsch that states that U.S stock Markets are weakest in the year following the election of a new U.S president. According to this theory, after the first year, the market improves until the cycle begins again with the next presidential election.

The four-year U.S presidential cycle is attributed to politics and its impact on America’s economic policies and market sentiment. Either or both these factors could be the cause for the stock markets statistically improved performance during most of third and fourth years of a president’s four-year term.

The four-year cycle is determined by the U.S presidential election. 2012 is an election year. We have 2016 and the cycle years are:

2012: Election Year

2013: Post-election Year

2014: Midterm Year

2015: Pre-Election Year

The course of important US markets is largely dependent on whether the current year is an election year or one of the three cycle years following an election. Stocks tend to see an above average increase during the year preceding an election year. The reason for this development is assumed to economic policy before an election. Increasing stock prices and a booming economy sheds positive light on the4 incumbent political party.

But not only stocks are influenced by the US election cycle. Interest rates and currencies can also be affected. Presidential cycle will have impact on stock market, real estate, bonds and commodities.

The Theory about presidential cycle states that economic sacrifices are generally made during the first two years of a president’s mandate. As the election draws nearer, administrators have a habit of doing everything they can to stimulate the economy so that voters go to the polls with jobs and a feeling of economic well-being.