The Presidential Election Cycle and Investing

Can Investors Time the Market With a Presidential Election Cycle?

Oval Office
••• Wally McNamee / Getty Images

Does the Presidential Election Cycle predict what the stock market will do? History reveals there is some relevance to this stock market indicator, but investors should be cautious in basing their investment strategies on the outcome of a presidential election. We share everything you need to know about investing and U.S. presidential elections.

Presidential Election Cycle Definition & How It Works

The Presidential Election Cycle is a theory first developed by a stock market historian named Yale Hirsch. The theory is based upon typical economic and stock market conditions that have been historically prevalent during certain years of U.S. president's term. This theory later evolved to be used as a market timing indicator for stock investors.


  • The second half of the presidency is usually stronger than the first because of economic stimuli, such as tax cuts and job creation.

History and Accuracy of the Presidential Election Cycle Theory

To summarize the stock market performance aspect of the Presidential Election Cycle Theory, the performance of stocks, ranked from the best year to the worst, is the third year, the fourth year, second year and first year. As with any market timing strategy, the overall pattern of investment performance related to the Presidential Election Cycle depends upon many independent factors.

In the most recent history, the election cycle theory has has mixed results. For example, stock market performance in Donald Trump's first year was much stronger than the second year. The first two years of Barack Obama's first presidential term were also stronger than his third year. And the same results occurred in Obama's second term — the first two years were much stronger than the third and fourth. George H.W. Bush's first year was much stronger than his third and fourth. Bill Clinton had strong first years in both of his terms.


Can the Presidential Election Cycle Influence the Stock Market?

The overriding caution with using any timing strategy is that the strategy is not ever reliable enough to remove market risk, which exists primarily due to the random and unforeseeable nature of economic and market conditions. It is a classic example of the folly of confusing causation with correlation — some of the overall stock market returns are attributable to political activities, but much of the relationship between the President's actions (or inaction) is coincidental.



