The Dow By Presidential Election Cycle

I recently downloaded all of the historical closing prices for the Dow Jones Industrial Average going back to 1896. That’s over 30,000 data points.

Today let’s take a look at how the Dow has performed over four-year presidential cycles. Below is what the average cycle looks like. I set the index to start at 100 at the beginning of the post-election year.

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The cycle hits a rough patch beginning on August 4th of the post-election year (not too far away for us) and continues to September 30th of the mid-term. Over that span, the Dow loses an average of 4.1%.

But then things get much better. From September 30th of the mid-term until September 7th of the pre-election year, the Dow has rallied for an average gain of 21.2%. That means that nearly two-thirds of the Dow’s entire gain over four years has come in a little less than one year.

After that, the Dow slumps again. From September 7th of the pre-election year until July 24th of the election year, the Dow drops an average of 3.2%. Then things get better again. From July 24th to the end of the year, the Dow gains an average of 10.2%. If we stretch that rally until August 4th of the post-election, back to where we started, the Dow gains 17.7% in a little over one year.

After that, the Dow historically hasn’t done much of anything during the election year until July 24th. From September 7th of the pres-election year until July 24th of the election year, the Dow has lost an average of 3.2%. After that, the Dow races for a 10% rally by the end of the year (that’s a little over four months). If we stretch that rally until August 4th of the pre-election year, where we started, the Dow jumps 17.7% in a little over one year.

So we have four nearly equal periods of one year each—two bull runs and two bears.

Posted by on April 17th, 2013 at 11:32 am


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