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Presidential Cycle, Political Parties and the Stock Market
Presidential Cycle, Political Parties and the Stock Market
As of Mon, Dec 23, 2024 (updates daily)
Summary
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This is the fourth presidential year under the current administration. Historically, a fourth presidential year has seen an average annual gain of 8.28%.
This year the market’s YTD return is 27.34%.
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Today is Dec 24, 2024. Historically, December has an average return of 1.29%.
With a Democratic president, December has an average return of 1.41%.
With a Republican president, December has an average return of 1.15%.
The stock market has historically performed better in the third year of a presidential cycle. The theory behind this is that politics and its effect on economic policies can cause the stock market to perform better. Investors expect better business conditions, corporate bottom lines and stock prices in the year before a presidential election.
On this page, we study the effect of the presidential cycle and political parties and their effects on stock market performances.
The data is from 1928 to 2023, and updated daily.
As shown in the table below, the market indeed performs the best during the third presidential year of a four-year term.
The average gain of the third presidential year is 13.96%.
The second best year is the fourth presidential year, with an average gain of 8.28% .
The worst year is the second presidential year, with an average gain of just 3.33%.
On average, the market has gained 8.05% a year since 1928.
Average annual gains in different presidential years and political parties (%) since 1928
| Democrat | Republican | Average |
|---|
| Year 1 | 12.89% | -0.76% | 6.63% |
| Year 2 | 3.70% | 2.89% | 3.33% |
| Year 3 | 15.42% | 12.23% | 13.96% |
| Year 4 | 11.12% | 5.21% | 8.28% |
| Average | 10.78% | 4.90% | 8.05% |
The table also shows a much higher average gain when a Democrat is in the White House.
On average, a Democratic president sees an average annual return of 10.78%, while a Republican president just sees an average gain of 4.90%.
The third year of a Democratic president would see the highest gains, with the annual average of 15.42%.
Among the different combinations of political parties and presidential years, the third years with Democratic presidents see the best returns, followed by the first years with a Democratic president. The worst years are the first years with a Republican president.
Out of the last 97 years, there were 65 positive years, or 67%. These are the percentages of the years that have seen positive returns. Again the third year stand out with more positive returns. A first year with a Republican president did the worst.
| Democrat | Republican | Number of Years |
|---|
| Year 1 | 77% | 36% | 24 |
| Year 2 | 54% | 55% | 24 |
| Year 3 | 69% | 91% | 24 |
| Year 4 | 77% | 75% | 25 |
| % of up years | 69% | 64% | 67% |
| Total Years | 52 | 45 | 97 |
Market return by Month
The charts and table below show the average monthly returns of different presidential years. It seems that September is usually a bad month in the stock market with an average loss of -1.17%.
| Presidential Year | Average | Jan. | Feb. | Mar. | Apr. | May. | Jun. | Jul. | Aug. | Sep. | Oct. | Nov. | Dec. |
|---|
| Year 1 | 6.63% | 0.76% | -1.66% | 0.61% | 2.45% | 1.90% | 0.56% | 2.28% | 0.06% | -1.62% | -0.59% | 0.68% | 0.54% |
| Year 2 | 3.33% | 0.47% | 0.01% | -0.06% | 0.43% | -0.76% | -1.32% | 1.01% | -0.45% | -1.47% | 2.40% | 2.17% | 0.90% |
| Year 3 | 13.96% | 3.52% | 1.40% | 0.69% | 2.51% | -0.15% | 2.25% | 1.32% | -0.10% | -1.24% | 0.71% | -0.11% | 2.33% |
| Year 4 | 8.28% | 0.08% | -0.10% | 0.92% | -0.18% | -0.89% | 1.52% | 2.12% | 3.06% | -0.36% | -0.37% | 1.32% | 1.48% |
| Party | | | | | | | | | | | | | |
|---|
| Democrat | 10.78% | 1.00% | -0.39% | 0.70% | 1.79% | 0.38% | 1.27% | 1.98% | 0.02% | -0.07% | 1.20% | 1.17% | 1.45% |
| Republican | 4.90% | 1.43% | 0.26% | 0.36% | 0.71% | -0.41% | 0.18% | 1.35% | 1.41% | -2.43% | -0.24% | 0.83% | 1.15% |
| Average | 8.05% | 1.20% | -0.09% | 0.54% | 1.29% | 0.01% | 0.76% | 1.69% | 0.67% | -1.17% | 0.53% | 1.02% | 1.31% |
This is the monthly returns with different parties in the White House. On average, when a Democratic president is in the White House, the market does better, even in the months when the market generally does poorly, such as September.
Sector performances in different years (Sector performance numbers are since 2000):
| Democrat |
|---|
| President year | num | S&P 500 | Basic Materials | Consumer Cyclical | Financial Services | Real Estate | Consumer Defensive | Healthcare | Utilities | Communication Services | Energy | Industrials | Technology |
|---|
| Year 1 | 3 | 26.65% | 34.22% | 29.99% | 25.43% | 18.83% | 21.02% | 26.84% | 10.93% | 17.64% | 29.90% | 25.82% | 41.00% |
| Year 2 | 3 | 1.58% | 6.52% | 1.09% | 3.53% | 5.39% | 8.99% | 6.87% | 8.12% | -5.54% | 22.25% | 4.68% | -1.75% |
| Year 3 | 3 | 7.83% | -6.91% | 14.50% | -1.17% | 2.60% | 1.38% | 4.82% | -0.61% | -3.45% | -8.89% | 4.14% | 22.21% |
| Year 4 | 3 | 16.76% | 8.68% | 19.59% | 24.03% | 7.70% | 6.21% | 5.67% | 11.48% | 19.49% | 11.13% | 17.99% | 18.94% |
| Republican |
|---|
| President year | num | S&P 500 | Basic Materials | Consumer Cyclical | Financial Services | Real Estate | Consumer Defensive | Healthcare | Utilities | Communication Services | Energy | Industrials | Technology |
|---|
| Year 1 | 3 | 3.13% | 7.78% | 5.33% | 4.57% | 4.84% | 4.91% | 4.70% | -2.53% | -13.15% | 4.97% | 4.84% | 3.09% |
| Year 2 | 3 | -5.33% | -4.57% | -3.56% | -3.25% | 6.44% | -3.58% | -4.29% | -2.20% | -6.75% | -6.82% | -8.91% | -10.37% |
| Year 3 | 3 | 19.60% | 26.44% | 16.72% | 12.86% | 10.48% | 17.01% | 14.43% | 18.33% | 7.80% | 21.14% | 24.40% | 36.47% |
| Year 4 | 3 | -4.41% | -8.52% | 0.84% | -14.68% | -9.06% | 4.33% | -2.17% | -5.75% | -9.20% | -14.95% | -3.23% | 0.92% |
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