Third-year presidential cycle usually boosts stock market
Can investors expect the stock market to turn around next year? Yes, if you look at this historic data on the connection between the third year of a president in office and the accompanying rise in the stock market, according to this Wall Street Journal story (subscription required):
Stock-market growth is statistically much stronger during the third year of a president's term than any other year, and bear markets tend to bottom in the second year of the presidential term -- both of which suggest Wall Street can expect a nice turnaround in 2003. The market hasn't had a down year in the third year of a presidential cycle since 1939.
While some write off third-year gains as a mere coincidence with the business cycle, others say stocks perk up as investors bet that new stimulative policies will get passed to help smooth the incumbent president's way in the next election....
"People vote with their pocketbook, so [politicians] try to make voters' pocketbooks feel flush," says Tobias Levkovich, equities strategist at Salomon Smith Barney. "The market anticipates the beneficial impact."
...That trend is even more pronounced in the post-war era. Since 1953, the Dow industrials showed an average gain of 18.3% in the third year of a presidential cycle, compared with 3% in the first year, 6.5% in the second year and 7.6% in the fourth year, according to Mr. Hirsch, who says the Great Depression skewed earlier numbers.