The Presidential Stock Market Cycle
There’s a stock market cycle that corresponds to Presidential terms. What does it tell us about what we can expect this year?
Subscribe to our Podcast!
Contact Steve here:
https://calendly.com/stevewershing/inquiry
Full Transcript below:
00;00;00;00 - 00;00;28;03
Unknown
Welcome back to 30 Minute Money. It's the podcast that delivers action oriented, smart money ideas and bite sized pieces. I'm Scott Fitzgerald and I'm at ROC Vox recording and production in Bushnell's Basin, just outside of Rochester, New York. Steve Wershing from Focused Wealth Advisors, is my co-host, my guest host, my host guest. What do you call yourself these days, Steve?
00;00;28;07 - 00;00;46;01
Unknown
I'm not one of those. I don't know what I call myself. You can call me whatever you want. All right. How about Steve? Is that? That'll work fine. All right. Sweet work. Fine. Welcome back. Sir. It's good to have you very much. Nice to see you again. Nice to be back. And, this one, we're going to talk about the the four year presidential stock market cycle.
00;00;46;05 - 00;01;09;21
Unknown
That's the stuff that you come up with. It's really. Well, I thought it's interesting and and I thought it's particularly timely because, you know, there's a lot of uncertainty going on and people are not sure what's what's happening. So I thought this would be kind of a fun thing to, to, to talk about. And, and the four year presidential cycle is, that the stock market has a tendency of doing the same kind of thing.
00;01;09;21 - 00;01;33;00
Unknown
And each year of the presidential cycle that it's done before, it's not guaranteed. But it it happens with surprising regularity. So I thought it would be fun to talk about that today. Yeah. So back in that it was developed. I was first observed back in 1967 by, by Yael Hirsch, who, who writes, a stock investing book.
00;01;33;00 - 00;01;50;28
Unknown
And it's a, you know, he's had multiple editions over the years, and he's updated it every time he's come out with the new edition. And what, what he's found is that these cycles tend to be pretty consistent, and they tend it is regardless of which political party is in power and which one is, you know, running for reelection and that kind of stuff.
00;01;50;28 - 00;02;22;25
Unknown
It just seems to be real is surprisingly consistent. So interesting. Yeah. So what what what he found was that that in the first couple of years of a new presidential term, the market tends to do not as well. and it tends to do better in the, in the second two years of the term. And so in fact, it, it tends to be kind of middling performance, you know, maybe a little bit of a disappointment in the first year of a presidential term and then, you know, kind of lukewarm in the second year and then the third year of a presidential term tends to be the best.
00;02;22;28 - 00;02;40;16
Unknown
Interestingly, I would have thought that it would have been the fourth year. There's a lot of there's a lot of I think like the fourth year, they're already thinking about the election already. So there's like one solid year in a four year term where they're just like down to business or they're supposed to be well, yeah. Yeah. And and that's and that's pretty true.
00;02;40;18 - 00;02;56;14
Unknown
but I used to think that, well, it must be the fourth year because in campaigns everybody's promising everything to everybody. So everybody feels right, ecstatic about what they're going to get. You know? So I would have thought the fourth year was the strongest, but in fact, it's the third year for some reason that tends to be the strongest.
00;02;56;17 - 00;03;15;03
Unknown
And, and, you know, one of the things that they found is that, you know, if you're if there's if there's an incumbent who is up for reelection that they, you know, they're competing with a, with somebody else. And so they're trying to generate as much good economic news as possible and create as much economic stimulus as possible.
00;03;15;03 - 00;03;43;19
Unknown
And that's that promising everything to everybody that I was talking about. and in fact, we do see, we do see some effect there that, that when an incumbent is up for reelection, that the S&P 500 tends to be on average, up 12.5% in those election years versus, 6.7% in all election years. So if there's an incumbent up for reelection, it tends to do almost twice as well as it does in a typical year.
00;03;43;21 - 00;04;00;14
Unknown
Why is that? Do you have any idea why that would be? I don't I don't and and I don't think anybody has any idea about the whys of a lot of this. This is not this is not explaining that I did not explaining why the market does what it does. It's just an observation of what the market does.
00;04;00;16 - 00;04;17;14
Unknown
But it's good to know that this is very consistent. Right. It is good you it is good. I can help you with your investing and your your different. Well, exactly. And that looks one of the reasons I was thinking about this was, you know, a lot of us are nervous that, you know, last year being the third year in the cycle was really good.
00;04;17;14 - 00;04;39;17
Unknown
The S&P 500 was way up last year. And of course, the question on everybody's minds is cannot continue. And you know, why do I I'm not telling you what the market's going to do. I have no idea what the market's going to do. But what this suggests is that, yeah, it could still be up this year. It could be a good year because the fourth year of a presidential term tends to be the second best of the four.
00;04;39;19 - 00;05;19;27
Unknown
And when somebody is running for reelection, it tends to do twice as well as when, you know, when when nobody's up for reelection, when you've got to elect a new president, you know, because somebody is terming out or. Yeah, something like that. So, so that so Yael Hirsch came up with this in 67. Lee Boal, who is a researcher and analyst at Charles Schwab, looked at the data between 1933 and 2015 and that he was the one who really sort of, refined some of this and, and determined that the third year of the presidency is the strongest, up 16.3% on average versus the fourth year, which, as we said a minute ago,
00;05;19;28 - 00;05;46;13
Unknown
is up on an average of 6.7%. And that's what we saw last year, was up very strongly. And so the question is what could happen in 2024? Well, if we go with history, we've got the fourth year of a presidential cycle. We've got a president who is running for reelection. So, you know, at least the presidential cycle would suggest that, you know, this this could be a halfway decent year, but halfway decent is no spot.
00;05;46;15 - 00;06;09;13
Unknown
Oh, but there's always a but yeah, because, you know, just because it's a cycle doesn't mean it's going to happen every single time. Right? We do have a lot of stuff that's really unusual about this year. Right. We've got we've got, historic discord in Congress. I mean, we've got people at each other's throats in Congress. It's probably the least effective Congress because everybody hates everybody else.
00;06;09;13 - 00;06;31;21
Unknown
And, you know, they're just trying to get in the way. Yeah. You've got two historically disliked candidates. You know, this is the rematch that nobody wanted to see, right? It's so funny. It is. Yeah. It's eye to eye but but that but here we are right. So and they've they've always I've always heard people talk about the presidential election as like the lesser of two evils.
00;06;31;21 - 00;06;49;12
Unknown
Like which one do you want. It's like which ones get to do the least amount of damage. We'll pick that one. Yeah, well who knows. I've got you know, I'm not I, I have a problem with that. Right. Because, you know, choosing the lesser of two evils is still choosing evil, so. Right. But that's the outlook that I'm getting from a lot of people.
00;06;49;12 - 00;07;09;21
Unknown
Yeah, that's that's absolutely what that's what that's all I hear from everybody is. Oh well I'd rather this guy than I don't want that guy. So I'll vote. I don't like this guy, but I'll vote for this guy because you know. Yeah, it's I don't think that's how they figured out. Yeah, exactly. Exactly. So, so you know, you've got all that kind of stuff going on and you've got stuff that could blow up at any moment.
00;07;09;21 - 00;07;33;13
Unknown
You know, you've got Ukraine going on and you've got China going on and you've got, you know, there's all kinds of stuff. So, you know, I think and then the other thing and this is really, really important and that is that it's a limited data set. So you we want to be really careful about drawing conclusions. I mean, the number of presidential, you know, the number of four year periods that we've had since 1967 is very small.
00;07;33;13 - 00;07;51;17
Unknown
Yeah, not statistically significant. So it's interesting and it's kind of fun to look at. but you know, don't go betting the farm on it. There's too much else going on that could get in the way. But I thought it was interesting, so I thought I would share that with that. Yeah.
00;07;51;19 - 00;08;26;13
Unknown
Your retirement is at risk. Not from the stock market, not from inflation. Taxes are putting your retirement at risk. I'm certified financial Planner Steve Worthing and I specialize in helping people create low tax retirement. Unmanaged taxes can take 3040, even 50% of your retirement income. Learn how to defend yourself against excess taxation. Our complimentary webinar. We'll cover all the principles you need to know to protect your money for you and your family, and keep it away from the government.
00;08;26;15 - 00;08;47;26
Unknown
This free webinar will cover how taxes are different in retirement. The taxes you pay in retirement that you don't have to pay during your working life. How to move tax savings into a tax free environment. The widows tax, the Secure act, the Secure act 2.0 and what they mean to you. The webinar is free, but you have to register to save your spot.
00;08;47;26 - 00;09;17;07
Unknown
So go to Focused Wealth advisors.com/webinars and find out more. And sign up right there. Even if you're not planning to retire for the next 5 or 10 years, this information will be critical for you. The longer you have to put the strategies into effect, the more you can accomplish. That's focused wealth advisors.com/webinars to find out more and to sign up today.
00;09;17;09 - 00;09;40;10
Unknown
And I say Steve working for president. Oh geez. What's your flight? Your, 30 minute actually 30 minute. Actually, I was vote for me. No, write me in. my 30 minute action item is check your allocation, because, this is certainly this could be a good year, but you certainly don't want to be over allocated to stocks, which could be the case because last year was so good and the stocks could have grown as a part of your portfolio.
00;09;40;10 - 00;10;02;25
Unknown
So check your allocation, make sure you're allocated, appropriately for your risk profile in your goals. That's the 30 minute action. All right. There you have it. From the future president of the United States. Thanks for watching and listening. The chicken in every pot or a pot in every know something. What's what's the current version? And every chicken.
00;10;02;28 - 00;10;38;02
Unknown
It's just weird. It's a new marinade. 30 minute money, three zero minute money. You could check us out on all the, podcast platforms and of course, of course, like and share and, tell your friends about it. And we will see you next time on 30 Minute Money.