The tendency for U.S. stock markets to follow a 4-year cycle aligned with the U.S. presidential election cycle. Years 3–4 of the cycle tend to be strongest.
Description
The Presidential Cycle theory holds that U.S. equity markets tend to perform best in the 3rd and 4th years of a presidential term (pre-election and election years), and weakest in the 1st and 2nd years (post-election). This is attributed to fiscal and monetary policy actions taken ahead of elections.
Key Points
- Year 1 (post-election): often weakest as unpopular policies are implemented
- Year 2: volatile; mid-term elections create uncertainty
- Year 3 (pre-election): historically strongest — administration stimulates economy
- Year 4 (election year): also tends to be positive
- 4-year cycle aligns broadly with Elliott’s Primary degree sub-waves
