NEW YORK ( Stockpickr) -- Over the past 100 years, a clear pattern has been in place. The stock market has tended to trade in a similar fashion in each of the four years of a presidential cycle -- that is to say, first-year results are similar from term to term, and so on. The logic behind such rational price action is quite simple: Presidential economic policies tend to follow predictable patterns that boost the chances a president (or his party) will stand a better chance of re-election.
As we head into the final year of the four-year cycle, what should investors expect? Well, the historical data suggest we'll get a nice rally, although recent stock market activity seems to be held hostage to some unusual factors that are impacting this historical cycle.
The first year of a new term is usually characterized by policies that represent a break from a predecessor's policies, usually based on populist-oriented promises that were made during the campaign season. This "feel-good" environment has, on average, generated an 8.8% gain in the first year of a new presidential cycle, according to veteran Wall Street strategist Mark Hulbert. The "year" in question is actually Oct. 1 to Sept. 30, as that is the period in which investors tend to start thinking about the impact of a new regime.
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