These efforts often contribute to strong stock returns in the run-up to presidential elections, when it is in presidents’ best interests to stimulate the economy.
In the first half of a presidential term, however, when the White House and Congress are concerned with the mundane affairs of government, there is often a compelling need to reduce or encourage government spending (substitute “pressure,” if you’re prefer) the nominally independent Federal Reserve to raise interest rates and curb economic growth. The best time to get hurt is when there are still a few years left before the presidential election, the theory goes.
As Mr. Hirsch told me at the time, it’s good policy to “get rid of the dirty stuff in the economy as quickly as possible,” an exercise in fiscal and monetary restraint that hurt stock returns in the second year of a presidential bike.
That would be where we are now.
Where is Biden
Despite poor market performance this year, stock returns were relatively good up until March during the Biden presidency, with the Dow’s cumulative gain of 12.1 percent, well above the median of 8.1 percent since 1901. Over the same period, the Dow was under Mr Trump won 22.2 percent.
Both performances were far behind the leaders, according to Ned Davis Research. The top three, from inauguration through March 31 of their second year in office, were:
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Franklin D. Roosevelt in his first term, 89.2 percent.
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Ronald Reagan in his second term 48.2 percent.
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Barack Obama in his first term 31.1 percent.
What should we think of all this?
Well, the pattern of the presidential cycle suggests that the market will start to recover at the end of this year and rise next year – historically the best. That outcome is unlikely, however, if the Federal Reserve’s fight against inflation plunges the economy into recession, as some forecasters, including Deutsche Bank, are predicting.
I wouldn’t count on any of these predictions or patterns. As an investor, I do my usual thing, buy low-cost index funds that reflect the broad market and hold it for the long term.
