This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

How Stocks React in an Election Year

Stocks in this article: VIA.BOMCIPG

A president's second year is usually not very favorable, and the market has risen, on average just 0.4%. That's when a president often looks to enact tougher policies that can often restrain growth, knowing that several years remain before voters will respond to the new set of policies. Year No. 2 is often characterized by higher taxes, closed loopholes, and vetoed pork-barrel spending. Think of Ronald Reagan's second term, when he agreed to a series of tax hikes in 1986. He would never have done so if his party had been faced with an imminent presidential election. That's why markets have historically been flat in the second year of a presidential term.

Of course, Washington has been so gridlocked that only a few bits of legislation were passed in 2010. Perhaps because of that gridlock, the S&P 500 managed to move up to 1140, good for a 9% gain.

The market usually rises about 15% in the third year of a presidential cycle, as the president typically looks to push through a series of economy-stimulating moves ahead of election season. In this instance, gridlock has not been helpful as it created Armageddon scenarios in the eyes of investors. As of now, we're looking at a flat year for the S&P 500. Add the three years together, and the S&P 500 has actually dropped about 3%.

So to recap, we had two years of solid outperformance and one year of underperformance. Perhaps the fourth year of the cycle will prove to be more advantageous. Indeed, the final year of a cycle tends to deliver 4% gains, and the fact that the S&P 500 is already up around 11% from the end of September can be seen as an offset to the prior three year's underperformance. Still, it may be prudent to trim expectations for the coming three quarters.

Nevertheless, certain sectors can be clear beneficiaries of the fourth year of the cycle. For example, media firms such as broadcasters, advertising agencies and even -- dare we say -- print publications tend to see a big uptick in spending as campaign funds get spent on the candidates.

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,339.46 +144.04 0.84%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,623.9530 +57.8150 1.27%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs