Interesting article in the FT today regarding the 4 year presidential cycle.
“The third years of US presidential terms have been great for investors. Research by academics Scott Beyer, Gerald Jensen and Robert Johnson shows that in the past 12 presidential terms, large-cap stocks gained 23.8 per cent on average during the third years. In years one, two and four they averaged 8.3 per cent. For small caps the gap is bigger: 38 per cent in year three, and 11.75 per cent in the other three years.
This is when presidents are spending money on bolstering their case for re-election, conventional wisdom says. Unpopular policies happen in the first two years. Uncertainty is greatest in the fourth. You make money in the third year.
But the research suggests this argument may rest on a false correlation. Presidents do not matter to the market as much as chairmen of the Federal Reserve. The Fed has been accommodating (it has been reducing the discount rate) in 65 per cent of year threes. It has been so lenient in only 48 per cent of all other years.”
