3rd Year of a President’s Term Is Best for Stocks, Report Says

The odds are highest, at 82%, the S&P 500 will be up, per Bespoke.

If you believe that the stock market responds to the presidential election cycle, or at least to where we are in a chief executive’s term, new research says that now—that is, the third year of the current administration—is historically the best.

In the third year, which is of course 2019, the S&P 500 has been up 81.8% of the time since 1928, according to research firm Bespoke Investment Group. The fourth year, namely when the election happens, is in the black 72.7% of the time. But the first and second years are ahead an identical 56.5%.

That makes sense because administrations tend to push new initiatives in the first half of the term, which may unnerve some investors. What’s more, the stock market advances most of the time historically, aside from some big pratfalls (like 1929, which was year two for Herbert Hoover, and 2008, George W. Bush’s final year).

Bespoke presumably chose 1928 to start its study because the predecessor  of the S&P 500 launched in 1926 (it originally was 90 stocks and expanded to 500 in 1957).

A president’s year three also has the best returns, with an average gain of 12.81%, Bespoke said. By comparison, year four’s showing was pedestrian, at 5.71%, which was close to the increases in the first two years, 5.66% and 4.54%.

So far, the three years of President Donald Trump have kept to the pattern, at least for this year and 2017. Turns out that in 2019 to date, the S&P 500 is ahead 24.5%. Trump’s first year was up 19.4%, but his second was down by 6.2%, as the market slumped in the fourth quarter and barely missed moving into bear territory.

While fears of a recession next year are abating, the US-China trade war or some other event could mess up the buoyant market in 2020. If so, that will be a statistical anomaly.

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