The Definitive Guide To The U.S. Election Cycle and Stock Market Trends 9780967513119

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends Profit from the most consistent cycle in the U.S. economy 2024-2027 Election Cycle Edition

Robert C. Miner

Copyright 2024, Robert C. Miner All rights reserved. Neither this work nor any portions thereof may be reproduced, stored in a retrieval system, or transmitted in any capacity without the written permission from the publisher. Intellectual property rights of the research in this book are owned by Robert C. Miner.

The Inevitable and Required Disclaimer: The publication is designed to provide accurate and authoritative information in regards to the subject matter covered. It is sold with the understanding that the author and the publisher are not engaged in rendering legal, accounting or other professional services. While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written or recorded sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any loss of profits or other commercial damages, including but not limited to special, incidental, consequential or other damages. The Definitive Guide to the U.S. Election Cycle and Stock Market Trends (V.1) ISBN: 978-0-9675131-1-9

Average. Nothing meaningful or worthwhile ever came from that word. Portia de Rossi

The Definitive Guide to The U.S. Election Cycle and Stock Market Trends Contents Introduction .............................................................................................. I-1 Chapter 1: The One Stock Market Cycle That Should Increase Your Profits ............................................................................. 1-1 Chapter 2: The Four-Year Election Cycle .................................................. 2-1 Chapter 3: Post-Election Years.................................................................. 3-1 Chapter 4: Mid-Term Election Years ......................................................... 4-1 Chapter 5: Pre-Election Years ................................................................... 5-1 Chapter 6: Election Years ......................................................................... 6-1 Chapter 7: The Sweet Spot: Close to a Sure Thing .................................... 7-1 Chapter 8: Election Cycle Trade Examples ............................................... 8-1

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Introduction In the U.S., every four years is a presidential election. Each of the four years within the cycle are a unique, repetitive period within the cycle from the Election Year to Post-Election Year to Mid-Term Election Year to the PreElection Year and then it starts over again. A repetitive four-year cycle. Does each administration have a predictable influence on the stock market trends for each of the years? Does this repetitive political cycle give us a predictable stock market cycle as well? The four-year “Election Cycle” compared to stock market trends was first referred to by Yale Hirsh in his Stock Traders Almanac in the 1970’s. The idea being the U.S. four-year, presidential cycle has a relatively predictable influence on the stock market trends. It turns out that is not the case, at least not throughout much of the cycle. However, there are periods within this four-year cycle that have had a strong bias in years past which may be explained by the intentions of the incumbent administration during different phases of the cycle. We should be able to take advantage of these periods to increase our odds of trading success. I’ve done studies of the U.S. Election cycle and others, including the socalled Decennial Cycle for subscribers to my DT Report and its predecessors since the late 80’s. For 40 years my approach to any new information is to determine if it has practical application for a trade strategy. Will it increase the odds of a successful trade? The information is either useful to help make a high probability trading decision or it is just an interesting curiosity or historical tidbit. The Definitive Guide to the Election Cycle and Stock Market Trends goes far beyond any study I’ve seen related to the U.S. election cycle and stock market trends. Just as it is important to identify information to include in a trade strategy, I’ve identified those periods with no bias you should be aware of so as not to be misled by studies that may be poorly designed or executed. You’ll learn why to beware of how the typical Election Cycle trend line is presented and why averages of any set of numbers can often be misleading. You’ll learn how to identify what set of data is useful and what is not. I-1

Introduction I won my first real-time, real money futures trading contest in 1993 with over a 110% documented gain for the year. In the past several years, each year I’ve placed in the top five of real-time, real money global futures and forex public trading contests with documented double and triple digit annual gains. I only refer to this real world trading success to emphasize that every approach to financial and market analysis is to make a practical, high probability trading decision. I don’t make forecasts. I’m not an economist. I trade futures, ETFs, stock indexes and Forex. This book is for traders, not investors. An investor is someone who identifies a well-run company with long-term profit potential and buys a stock that gives him an ownership interest to share in the success and profits if there are some and usually to hold long term. A trader buys a stock or index or currency or other financial vehicle with the sole purpose of selling it sometime in the relatively near future for a higher price. A trader’s time frame is a few days to a few months. It is usually not relevant how well run or profitable is the company. Only that the trend is up and the “technical” position of the market implies it will continue up. The Definitive Guide to the Election Cycle and Stock Market Trends will identify distinct periods during the Election Cycle that have had a strong positive bias in the past to be alert to for trade opportunities. The user will apply technical analysis whether cycles, Elliott Wave, pattern recognition, time and price support and resistance, momentum cycles etc. for the specific trade strategy to take advantage of the periods of time within the election cycle that have a strong directional bias. In the last chapter, I give many examples how to apply what you learn in this book to technical analysis for specific trade strategies. I wish I had this information in my early years of trading to alert me to those distinct periods within the election cycle to take advantage of those periods with a very strong positive bias. Today, it is an important part of my trading plan that I also share with subscribers to my DT Report. Include this information in your trading plan to help you increase your trading results year in and year out. __________

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Chapter 1:

The One Stock Market Cycle

That Should Increase Your Profits

Table of Contents Some of the Practical Trade Strategies You Will Learn ............................. 1-2 The One Cycle You Can Count On ............................................................ 1-3 The Election Cycle and Trade Strategies................................................... 1-3 The Election Cycle and the Stock Market ................................................. 1-3 Don’t Trust Averages ................................................................................ 1-6 The Four-Year Election Cycles Since 1949................................................ 1-7 Practical Statistics .................................................................................... 1-9 What Do Averages Predict? .................................................................... 1-11 Election Cycles Since WW2 .................................................................... 1-11 Statistics, Forecasts and Biases ............................................................... 1-12 You Are More Biased Than You Think.................................................... 1-12 The Four-Year Election Cycles ................................................................ 1-14

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

The Real World of Practical Trade Opportunities

Many books, articles and research papers have been written about stock market cycles with forecasts of the next cycle revolution and how you can make enormous profits from the next historic surge or collapse. Most of the cyclic forecasts have not come to pass. Many of the “cycles” were made evident from historic data that may have been cherry picked or massaged to arrive at a pre-conceived conclusion. The Definitive Guide To The Election Cycle and Stock Market Trends is a dive into the Election Cycle and stock market trends, probable in more detail with more practical information than you’ve seen before. It reveals the best probable periods for the biggest potential gains and those periods to avoid. It gives you all the statistics and clear explanations for every setup, so you clearly understand what to prepare for. This is key information for the real world of trading and practical trade strategies.

Some of the Practical Trade Strategies You Will Learn: ➢ Never make a trading decision based on averages.

➢ Be prepared for the distinct “seasons” within the political year that have an overwhelming advantage or disadvantage. ➢ A few specific periods have had 100% results in the past 75 years! ➢ How to incorporate specific Election Cycle trends into a practical trade plan. ➢ Which political party and presidential term has the potential for the greatest returns. ➢ An alert calendar for each year in the Election Cycle to prepare for specific trade strategies. ➢ And a whole lot more.

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Chapter 1: The One Stock Market Cycle That Should Increase Your Profits

The One Cycle You Can Count On

Every four years, the United States elects a president. It is a fixed cycle with no variance. Every administration has great influence over the immediate economic environment and perceived future for the economy. While that influence will vary according to the support the president has from congress, there will be influence for better or worse. The common denominator for each administration is to put the most effort to boost the immediate prospects of the electorate, often without regard for the long-term consequences, especially as the election nears. The Election Cycle tracks the average trend of the S&P Index for each four-year cycle beginning with the year following the presidential election through the year of the next presidential election. You’ll learn why an average cycle may be misleading, which years typically have the best outcomes, and, more importantly, the specific periods and conditions within each year that history has shown offer the highest potential outcomes for you to take advantage of.

The Election Cycle and Trade Strategies

The useful information gleaned from an in-depth study of the Election Cycle and stock market trends does not give us an objective trade strategy, but alerts us to specific conditions and periods of time that have had consistent trends in the past. I have traded for almost 40 years and have found these Election Cycle biases to be an important addition to my technical trading strategies. Whatever technical trading strategies you use, whether momentum cycles, pattern recognition, price or time reversal zones etc., you can incorporate the Election Cycle biases and trends into your trading plan and trade alert systems which should increase your probability of success.

The Election Cycle and the Stock Market

The simplest approach to the four-year election cycle compares the average returns of the stock indexes for the four-year U.S. election cycle. The four years include the Post-Election Year (PtEY), the Mid-Term Election Year (MEY), the Pre-Election Year (PEY) and the Election Year (EY).

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends We are going to take a deep dive into the Election Cycle and Stock Indexes in more detail and with more useful information than simply viewing the Election Cycle as the average, single-line chart. The chart below includes a line graph of the average trend of the S&P of all the four-year Election Cycles since 1949. This is how the Election Cycle is usually displayed. It is constructed by taking the average of the week-ending data for each four-year cycle.

A couple things jump out right away. The average trend of the mid-term election years appears relatively flat until the final quarter of the year. The average trend of the first half of the pre-election years is a strong bull trend until the middle of the year. While an average may be helpful, as you will soon learn averages can often be misleading which can be costly in the business of trading or investing. Having more complete information is better. I don’t trust averages to be useful to make a specific trading or investing decision. Neither should you. But you will learn how to average cycles and trends can lead you to look deeper into the data to discover what is useful and what is not. 1-4

Chapter 1: The One Stock Market Cycle That Should Increase Your Profits We’ll find the Four-Year Presidential Election Cycle has some relatively consistent characteristics that can be helpful to prepare for potential trends or volatility for each year within the cycle. You’ll learn some unique characteristics of each of the four years that you can apply to very high probability trade setups which I don’t believe have been revealed before.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Don’t Trust Averages

Any group of numbers can be averaged, but the result is rarely meaningful. The average may lead you to further investigate, but you should never make a specific trade decision based on an average. The standard deviation of the group can help to identify how the group of numbers are dispersed, but still doesn’t reveal the outliers or the exceptions within the series. And importantly, an average doesn’t reveal the volatility which isn’t reflected in the average. The chart below includes the same Election Cycle Average of all election cycles since 1949 shown on the chart above, plus two additional cycles. The upper blue line is the 2009-2012 Election Cycle. It generally followed the average of all cycles since 1949 (the middle grey line) but with some sharp declines not reflected in the average of all Election Cycles since 1949. The bottom red line is the 2001-2004 Election Cycle. How closely did this four-year period follow the average cycle? Not only was it not close, but trended contrary to the average for all cycles since 1949 for much of the time.

Trading either of these cycles with expectations they would follow the average cycle could have been very costly. But like any cycle year, there 1-6

Chapter 1: The One Stock Market Cycle That Should Increase Your Profits were periods during each of these two four-year cycles, and any four-year election cycle, that you could have taken advantage of seasonal and political trends and more to up your odds of success.

The Four-Year Election Cycles Since 1949

If you need more convincing that you need to dig much deeper than a simple average of all four-year election cycles, check out the next chart which includes all four-year cycles since 1949.

The extremes of these election cycles ranged from over 100% to -45%! While most of these cycles finished positive, the trends from beginning to end appear to be all over the place. The average of these 18 widely divergent cycles may appear to be a relatively smooth trend, but we now know that may not be the case and we need to dig into this data to see what may be helpful for practical trade strategies and what may be mis-leading. Let’s take one more look at what the average of all these cycles looks like. 1-7

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

The average cycle looks nice and orderly with some distinct trends within the cycle that should be sure money makers. But now that we’ve seen the raw data the average cycle was made from, we know to be cautious about making a decision based on an average cycle. __________

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Chapter 1: The One Stock Market Cycle That Should Increase Your Profits

Practical Statistics

It is important to understand what statistics like an average represent. An average is a simple mathematical calculation of the sum of past data points divided by the number of data points. Let’s make a simple example to better understand what an average represents and what it does not represent. Let’s say the average change of the S&P of the past 18 Election Years (EYs) has been 11%. That is impressive. Except, it does not predict the next data point. An average represents the historic data period. It has no predictive value for the next data point. The next data point could be well above or below the average. It could also be a new historic extreme, either positive or negative, or a black swan event or year. That average 11% gain may even have more years with a net loss than a net gain if the average of the years of net gain is greater than the average of the years with a net loss. ___________

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends The table below includes percentage gains and losses for two different groups of 18 numbers. Both groups have the same average gain for their group. Fooled by the Average Year

Gain/Loss

Gain/Loss

1

16%

36%

2

12%

32%

3

11%

-4%

4

9%

-5%

5

20%

32%

6

-6%

-5%

7

35%

-2%

8

12%

40%

9

17%

-1%

10

2%

-3%

11

24%

36%

12

-3%

19%

13

20%

-4%

14

19%

-6%

15

4%

-1%

16

0%

30%

17

1%

-3%

18

17%

-2%

AVG

11%

11%

2 of 19 Neg

10 of 19 Neg

Would you want to place a bet based on the average return of 11% for either of these groups? You would definitely want to consider the average for the first group to be helpful because there were only two years with a negative return and those two negative returns were fairly small. The second group had the same 11% average return, but the majority of the years were a loss, 10 of 19. You may have had a rude awakening if you were expecting an 11% gain for the next year. The simple lesson is you never want to consider an average a useful bit of information without knowing more details of the underlying data. The average may be a starting point but not enough information to make a 1-10

Chapter 1: The One Stock Market Cycle That Should Increase Your Profits decision. That is why throughout this book, I will always give you the complete data for every study so you can see for yourself what is valuable and what is not. Knowing the percentage of years with gains and the percentage with losses may be helpful, but still, it is not predictive of the next data point. Knowing the ratio of the positive to negative years may be helpful, but it is not predictive of the next data point. Knowing the average gains of the positive years and average loss of the negative years could also be helpful, but still not be predictive of the next year. Knowing how narrowly or loosely grouped the data points are (standard deviation) can also be helpful, but still not be predictive of the next data point.

What Do Averages Predict?

An average could be predictive under certain conditions, none of which exist in the financial markets. If the average is derived from the same or at least similar circumstances of the past of a large number in the sample group and those conditions will repeat into the future, an average may be helpful. The average could be helpful to predict with a high probability the average of all the outcomes of a large series of repetitions in the future, but not the next repetition. If there were 100 past election years with the same or at least very similar government, economic and monetary systems that remained constant into the future, the average outcome of the next 100 repetitions should be similar to the average outcome of the past 100 events. Even that average would only be useful if we knew the distribution of the data points in the average group. Are most of the data points grouped near the average or are the results evenly spread from the minimum to maximum data points in the group?

Election Cycles Since WW2

For the Election Cycle years, I only use data since the Post-Election Year of 1949, the beginning of the first full Election Cycle following WW2. More on why in a moment. That only gives us 18 complete repetitions of the fouryear election cycle, a relatively small series. The number in the series is too 1-11

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends small for the average to be anything except a starting point for further investigation. We will find that the series of numbers for each year within the Election Cycle are widely dispersed, but when we examine the behaviors between the beginning and end of each year, we will discover some very strong tendencies, under certain conditions, that should be very helpful for practical trade strategies.

Statistics, Forecasts and Biases

No matter how we crunch the numbers from the past, the results just give us an average picture of just that, the past. The averages from the past are not predictive of the next data point. How many times have you heard someone say, whether related to an election cycle, decennial cycle or a seasonal cycle, “…for the past 20 years the outcome has been positive 80% of the time with an average gain of 15%.” They then state this year there is an 80% probability the market will finish up around 15%. This is absolute nonsense. The average of the past is not predictive of the next data point for the reasons described above. The biggest problem with this type of statistical analysis in the trading and investing business is that wrongly perceiving some information is predictive when it is not can be costly, sometimes financially ruinous. When we hear or read this type of misinformation from so-called authorities, and believe it, we may make decisions based on their erroneous conclusions thinking our chance of success is high when this information is not predictive to a specific future outcome. Plus, we then have all sorts of biases that filter new information, so we only consider information that confirms our outlook (confirmation bias) and ignore new information that contradicts our outlook.

You Are More Biased Than You Think

Each of us has cognitive biases that may influence our decisions to one degree or another. A cognitive bias is a systematic error in thinking when we process and interpret information that affects our decisions. Whole books and comprehensive studies have been written about these biases. Let’s do a quick review of a few that are particularly prevalent with traders and see how they may affect our trading decisions. Confirmation bias is a big problem with many traders and investors. Confirmation bias is when we focus on information that confirms our 1-12

Chapter 1: The One Stock Market Cycle That Should Increase Your Profits outlook or trade position and ignore information that is contradictory. Look at enough indicators, settings, averages, cycles etc., and you will find some information that confirms your belief in the position or forecast for a market. You will often ignore information that may contradict your position or outlook. That is why in these Election Cycle studies, I focus on simple statistical positions of the past and how they may help to identify specific tradeable opportunities with minimal capital exposure in the future. Optimism bias is when we overestimate a favorable outcome more than reality would suggest. Studies have shown that around 80% of active traders underperform the S&P year after year, and most managed funds rarely beat a broad market average. Yet, each of us believes we are in the minority of those who are smart and experienced enough to succeed when most don’t. It is good to be optimistic. But it is best to make decisions based on objective information with a probable outcome and a trading plan to limit losses and maximize profits. The optimism bias is also demonstrated in so-called riskreward trades. The risk is the difference between the entry price and stoploss and can always be defined in advance. The potential reward is always a best guess. The best guess is usually overweighted resulting in a risk/reward ratio that may sound good but is just someone’s optimistic view of the potential outcome. Hindsight Bias is when someone convinces themselves after an event that they “knew it was going to happen”. It is the tendency to convince ourselves after an event that we accurately predicted before it happened. We often believe we were much smarter in hindsight than we ever have been! This may lead us to believe we would have been successful forecasting the future in the past so we should take action on our next future forecast regardless of the current objective information that may not support the forecast. These are just a few of many cognitive biases that may influence our trade decisions with costly results. There are many more. My approach to dissecting the Election Cycle year-by-year and seasonby-season is to discover objective information that can be used to make smart choices for specific trades. Objective and clearly understandable information will help to avoid these costly cognitive biases and identify high probability trade opportunities.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

The Four-Year Election Cycles

In the next chapter, we’ll have an overview of the Election Cycles including some basic statistics that will be helpful and a chart with comments for each four-year election cycle since 1949 for future reference.

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Chapter 2:

The Four-Year Election Cycle

Table of Contents What We See Is Not Always What We Get ................................................ 2-2 Understanding the 4-Year Presidential Election Cycle .............................. 2-2 The Election Cycle Since WW2 ................................................................. 2-2 The Four-Year Presidential Election Cycles .............................................. 2-3 Politics and the Election Cycle: It’s not what you think!........................... 2-6 How Sweet It Is! The period that is closest to a sure thing during the election cycle. ......................................................................... 2-8 Charting The Four-Year Election Cycles Since 1949 ............................... 2-10 Highlights of the Four-Year Election Cycle ............................................. 2-20 Will the Election Cycle Help to Identify Practical Trade Opportunities? 2-21 A Deep Dive Into Each Year of the Election Cycle .................................. 2-21 No Political or Financial Events History ................................................. 2-22 Election Cycle Years Chapter Format ..................................................... 2-23

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

What We See Is Not Always What We Get

Since most traders get much of their technical information from charts, we tend to be very visually oriented. A chart of the average trend may be positive and create a positive bias which can be imbedded and create additional confirmation-type biases going forward as discussed in the last chapter. For our purposes, I want to encourage you to question all averages and most statistics, understand what they represent and don’t represent, and not to place a bet on irrelevant and misleading information. So, we’re not going to trust just an average to guide us during the year. The annual and quarterly average, the median gains and losses, how those gains and losses are distributed and the percentage of years of gains and losses for the period will be useful information to begin a better investigation of the more useful tendencies throughout the four-year cycle. We know this information is not predictive, but it will be a jumping-off point for further investigation.

Understanding the 4-Year Presidential Election Cycle

The idea is that the incumbent president has a significant influence on financial and economic policy which effects stock market returns. The first couple of years of his presidency, the incumbent enacts policies that may be less popular and less advantageous for much of the electorate. The last couple of years, as the election approaches, he attempts to boost the economy as much as he can to have the best chance of a positive election outcome. A president may have an influence on policy, but he does not control it by any means, but this general tendency does follow in many years. I use the pronoun “he” referring to the U.S. President because they have all been men, thus far. In the years to come, hopefully that will not be the case.

The Election Cycle Since WW2

While there is data available for the DJIA index from 1896, the relevant period of time is following WW2 when the U.S. grew rapidly to be the world economic and political power and the dollar became the reserve currency for the world’s business. That only gives us 18 repetitions of the four-year 2-2

Chapter 2: The Four-Year Election Cycle election cycle beginning in the Post-Election Year of 1949. This is a relatively small series but a good starting point for further investigation. I’ve parsed the data since 1896 in many groupings including all cycles since the late 1800’s and just those after the Great Depression. The general form and trend of those periods is similar to the average cycle since WW2 even though the economic dynamics were different from the early 20th century / early industrial era to the modern financial era. The political system has remained the same, and the average four-year cycle trends similar. I choose to just use the post WW2 data for it to be more manageable and relatable. I believe it will give us the best opportunity to explore the statistics and develop specific trade opportunities.

The Four-Year Presidential Election Cycles

We will look at the chart of every four-year cycle and every year of the cycle since 1949 to see what actually took place in each past year, which helps to prepare us for the possibilities of the next year. We will look for any conditions, tendencies, or biases we can rely on to help make a trading decision. As you will see, the best strategy is to not expect a consistently bullish year from the beginning into year-end even though a line chart of the averages of each year may show a positive gain. Let’s begin by examining the data averages for each of the four years and then a chart of each four-year cycle. The four-year Election Cycle begins with the Post Election Year which is the beginning of the administration elected the prior year and runs through the Election Year. The four years are the Post Election Year, Mid-Term Election Year, Pre-Election Year and Election Year. The Election Cycle Average chart below includes the complete Election Cycles beginning with the 1949 Post Election Year and ending in 2020, the Election Year and last complete four year Election Cycle as of the time of this writing.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Four-Year Election Cycle Average from 1949 and 1981

The black line (middle) is the average of all complete Election Cycles since 1949 through 2020. The green line (top) are those complete cycles from 1981 through 2020, and the red line (bottom) are those complete cycles from 1949-1980. The cycles since 1981 are often singled out because they came after the prolonged period of stagflation from the late 60’s into the early 80’s. I’ve also singled out the cycles from 1949 to 1980. Note that each period has substantially the same shape. The recent period since 1981 is almost identical to the complete period from 1949, just at a higher level or greater average return. The first two years of the 1949-1980 period are decidedly net bear but the balance of the period has the same trend and shape as the other periods, just at a lower average return. We can never know if the next period is going to be relatively strong or weak, but the average cycles for all periods do not vary greatly, one from the other.

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Chapter 2: The Four-Year Election Cycle

Average Returns for Election Cycle Years and the Four-Year Cycles

Since 1949

8%

MidTerm Election Years 5%

# Neg Years

7 of 19

8 of 19

1 of 18

3 of 18

3 of 18

Since 1981

16%

3%

16%

4%

44%

# Neg Years

2 of 12

5 of 12

1 of 11

3 of 18

2 of 18

S&P Returns

Post Election Years

Pre Election Years

Election Years

17%

7%

Avg of the 4-Year Election Cycles 40%

This simple average data reveals something useful for further exploration. Since 1949, the Pre-Election Years have had the greatest average gain and, very important, there has been only one losing Pre-Election Year since 1949. Secondly, while both the Post-Election and Mid-Term Election Years have at least modest average advances, 7 and 8 of the 19 years respectively have been losing years! You would not want to place your bets based on the average outcomes over the past 19 years! The average return for the Post-Election Years doubled for the years since 1981, from 8% to 16%. The table above also shows the average return for the complete 4-Year Election Cycles since 1949 has been 40% with just three losing Election Cycles. Two of them were the terms of G.W. Bush who had the misfortune to begin his first term during the early stages of the dot.com bust that begin in 2000 and then his second term in the heart of the Great Financial Crisis of 2007-2009, the worst recession since the 1920’s Great Depression.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Politics and the Election Cycle: It’s not what you think!

Are Republican or Democrat administrations better for the stock market? Easy to find out. Here's a chart and breakdown of the 4-Year Cycle returns by political party.

Average Four-Year Cycle Returns by Political Party Average Returns for Democrat Administrations Average Returns for Republican Administrations

53% (8 of 8 Positive) 24% (7 of 10 Positive)

Want to make your Republican friends go apoplectic? Run these statistics by them. Democrat administrations have an average S&P return more than twice the average Republican administration and with no losing administrations since 1949! Statistics don't lie! Those are the facts! But we know better than to make a decision based on these averages. As we breakdown the 19 cycles into the political party administrations, the sample size becomes smaller. Since 1949 there are only 19 cycles with 10 Republican and 9 Democrat. While not a large sample size, the data is 2-6

Chapter 2: The Four-Year Election Cycle compelling. While many people believe that a Republican administration is better for business, the stock market has had decidedly better returns on average during Democrat administrations since 1949. Note how the trends strongly diverge in the Election to Post-Election Years average trend when the average trend for the Republican administrations is decidedly flat to down while the average trend of the Democrat administrations is constantly bullish. We’ll look at the averages by political party and first and second term president for each year in the chapters to come.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

How Sweet It Is! The period that is closest to a sure thing during the election cycle.

The period from around early October of the Mid-Term Election Year to mid July of the Pre-Election Year is what Hirsh of the Stock Trader's Almanac called the Sweet Spot. It is the period in any election cycle that tends to have the greatest and most consistent advances.

The Election Cycle Sweet Spot: Mid-Term Year Early Oct. – Pre-Election Year Mid July Election Cycle

% Return

1950-1951

13% 31% 17% 20% 28% 16% 50% -2% 35% 35% 23% 22% 42% 24% 14% 15% 8% 3% 22%

1954-1955 1958-1959 1962-1963 1966-1967 1970-1971 1974-1975 1978-1979 1982-1983 1986-1987 1990-1991 1994-1995 1998-1999 2002-2003 2006-2007 2010-2011 2014-2015 2018-2019 Avg Sweet Spot

Be alert to the Election Cycle Sweet Spot during every 4-Year Election Cycle. The average is 22% and importantly, there have been only one losing period. Most years are well into the double digits. 2-8

Chapter 2: The Four-Year Election Cycle We’ll take a more detailed look at this period including all the underlying data in chapter 8. This is a period to be very alert to as a trade strategy can be built around this overwhelming bias.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Charting The Four-Year Election Cycles Since 1949

This next section includes a chart of each Election Cycle since 1949. They will be a reference we will refer to and show the wide variety of trends in a four-year election cycle. Some of those four-year cycles with a strong positive return had months if not a year or so of strong declines. There are only three four-year cycles that did not have at least one down year (1949-1952, 1985-1988 and 2009-2012). Viewing each four-year cycle is a good reminder of how volatile a year may be and how quickly the market usually recovers from “bear” trends.

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Chapter 2: The Four-Year Election Cycle

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

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Chapter 2: The Four-Year Election Cycle

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2-14

Chapter 2: The Four-Year Election Cycle

2-15

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2-16

Chapter 2: The Four-Year Election Cycle

2-17

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2-18

Chapter 2: The Four-Year Election Cycle

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2-19

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Highlights of the Four-Year Election Cycle ➢ Positive Pre-Election Years: The most overwhelming statistic of the 4-Year Election Cycle is that the Pre-Election Years have the most positive bias with the greatest average return (17%). Only one Pre-Election Year since 1949 was a loss, which was only 1% (2015). ➢ Mid-Term Election Years are, on average, the weakest with the lowest average return (5%) and the greatest percentage of losing years (40%). ➢ Political Party Influence: The stock market tends to perform much better during Democrat administrations than Republican administrations, particularly the last 18 months of the administration (mid-Pre-Election Year to Election Year end). ➢ The Sweet Spot (around early October of the Mid-Term Year to mid-July of the Pre-Election Year) has been a high performing period. The S&P has not had only one small loss during this period since 1949. Returns for the period are usually well into the double digits.

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2-20

Chapter 2: The Four-Year Election Cycle

Will the Election Cycle Help to Identify Practical Trade Opportunities?

The answer is absolutely yes! How can this be after spending so much time earlier in the chapter warning how average data for trends and cycles can be so misleading? The average data is the starting point for further exploration. As you will learn, we’re never so bold to suggest that any particular year will be bullish or bearish or to expect a typical return for the year. But you will learn of unique periods within each relevant year which have been overwhelmingly positive or negative in the past and why and how that may fit into the election process. You will learn how to incorporate those unique periods into your technical analysis to identify specific trade opportunities throughout each year. You will learn that a thorough understanding of the objective data for each year should be of major value for your trading plan.

A Deep Dive Into Each Year of the Election Cycle

Next, we’ll take each of the four election cycle years one by one, and review what annual and seasonal trends each may have that we can incorporate into a trading plan. We’ll find that some years have “seasonal” periods with significant and consistent trends to take advantage of and some years with periods of low to negative returns to avoid. To everything there is a season, and a time for every purpose. A time to go long, A time to be short, A time to be active, A time to vacation. A time to reap and a time to sow.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

No Political or Financial Events History

I do not include any notes or commentary regarding historic political or financial events in the following studies. The only political reference is to the administration’s party and term each year since this is solely objective data. I do not include any financial history or fundamentals such as interest rate or Dollar Index trends, booms or busts, bankruptcies or such. While how these events may or may not effect the stock market trends at the time may be interesting, the studies for this book are purely related to the objective stock market data for each of the four years of the Election Cycle.

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Chapter 2: The Four-Year Election Cycle

Election Cycle Years Chapter Format

Each of the four years of the Election Cycle has its own chapter and a similar format. Each is stand-alone commentary and data. They don’t need to be read in order. The headings will vary year to year, as each year has its unique seasonal trends. The Relevant Year referred to below will be one of the four years of the Election Cycle, the Post-Election Year, the Mid-Term Election Year, the Pre-Election Year or the Election Year. Some of the general descriptions and instructions are repeated in each chapter because each chapter stands on its own. ➢ Table of Contents: Each chapter has its own table of contents so you can quickly find the relevant information for that year. ➢ The Relevant Year average cycle data, chart and comments. ➢ The Relevant Year average quarterly and annual returns. ➢ The Relevant Year average by Political Party. ➢ The Relevant Year by 1st and 2nd term administrations. ➢ The Relevant Year Charts: Year by Year with Key Comments. ➢ Double News Events and Charts. A unique study for each year with very high probability outcomes. ➢ The Relevant Year Seasonal Trends and Averages. These can vary year to year as I just show those that are relevant to that particular year within the Election Cycle. ➢ The Santa Claus Rally and if it is relevant or not for the year. ➢ The Relevant Year Summary: Key Factors and Trade Strategies are summarized for the year for quick reference with a page reference to the detailed data earlier in the chapter. ➢ Traders Relevant Year Calendar: Periods during each year to be alert to seasonal and political trends for each year. Put reminders in advance in your calendars for each year to check the market position and high probability trends for the relevant year for specific trade opportunities. Many pages have a lot of white space. I think it is important to have the relevant commentary for a chart or table on the page of the chart or table if possible. To keep the flow of information logically grouped, I often needed 2-23

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends to begin the next chart or table or section on the following page, leaving part of the page blank. For me, it is more important that the information is as accessible as possible to be as useful as possible for the reader, even if it means the page count may be higher. A page break is represented by the short divider line. Use the white space for notes. The chapters do not have to be read and studied in order. Each chapter is a stand-alone study for the relevant year. Go directly to the chapter of the current year you are reading this to get up to speed of the immediate trade opportunities that may be available for your immediate time.

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2-24

Chapter 3:

Post-Election Years

Table of Contents What You’ll Learn About Post-Election Years (PtEY) ................................ 3-2 The Post-Election Year (PtEY) in the Election Cycle ................................. 3-2 Post-Election Years by Political Party ....................................................... 3-8 The Post-Election Year Charts: Year by Year .......................................... 3-12 Post Election Years Double News Events ................................................ 3-33 Post-Election Year Seasonal Trends ........................................................ 3-42 Post-Election Year Key Factors Table ..................................................... 3-50 Post-Election Year Key Factors and Trade Strategies .............................. 3-53 Double Negative and Positive News Events ............................................ 3-58 Trader’s Post-Election Year Calendar...................................................... 3-59 Post-Election Year Opportunities ............................................................ 3-61

3-1

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

What You’ll Learn About Post-Election Years (PtEY) ➢ The Post-Election Year quarters have had the highest returns and fewest losses.

➢ Which political party has had an overwhelming advantage during PtEYs. ➢ The two seasonal periods in a PtEY that have had a distinct positive advantage. ➢ A period during a PtEY that is usually thought to be positive but turns out to have not had enough of a positive bias to be helpful. ➢ At the end of the chapter, a Post-Election Year calendar to prepare you in advance for the high probability biases to incorporate into your trade plan.

The Post-Election Year (PtEY) in the Election Cycle

The Post-Election Year is the first year of the four-year Election Cycle. The chart on the following page is the four-year Election Cycle to show the PostElection Year in the context of the subsequent three years of the cycle. The black line of the 4-Year Election Cycle Average includes all Election Cycles since 1949. The grey line is the average of the Post-Election Years since 1981. Both have substantially the same form throughout the Election Cycle with the more recent cycles since 1981 at higher returns. On average, the Post Election Year (PtEY) is consistently bullish from a spring low. But we know to be wary of averages which could include years that were negative.

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3-2

Chapter 3: Post-Election Years

Average Returns for Election Cycle Years and Terms

Since 1949

Post Election Years 8%

Mid-Term Election Years 5%

Pre Election Years 17%

7%

Ave of the 4-Year Cycles 40%

# Neg Years

7 of 19

8 of 19

1 of 18

3 of 18

3 of 18

Since 1981

16%

4%

15%

4%

44%

# Neg Years

2 of 12

5 of 12

1 of 11

3 of 18

2 of 18

S&P Returns

Election Years

The Post-Election Years have benefited the most of the election years since 1981. The average return has almost doubled from 8% to 16% and there have only been two negative years since 1981. Since 1981, the PostElection Years have had the greatest average gain of the four years in the election cycle. For most recent PtEYs, it has been very profitable to be fully committed to the stock market.

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3-3

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year Average Cycles What does an average Post-Election Year look like? The lower black line in the chart below is the average of all PostElection Years since 1949. It suggests the average trend is typically flat into late March followed by a consistent net bull trend into year end with a notable correction in the third quarter. On average, the second and fourth quarters are quite bullish. The first and third quarters, not so much so. The average of the Post-Election Years since 1981 has the same trend structure but at a consistently higher rate of return.

Like all averages, they don’t tell the whole story. Since 1949, 7 of the 19 post-election years have been negative for the year. Five of them with annual losses in the double digits! Although more recently, things are looking up for the PtEY. Only 2 PtEYs have been negative since 1981.

____________ 3-4

Chapter 3: Post-Election Years

All Post Election Years Chart This chart includes all Pt EYs from 1949 to 2021. Would you want to make a trading decision based on the single average of all years as shown above knowing the wide range of dispersion of the individual years? I hope not. But, just eyeballing this chart there may be a couple periods that seem to have a positive bias regardless of where the seasonal trend started. Most years were sideways to up from around the second quarter into the summer. And, most years were sideways to up or net Bullish from around the fall into the year end. We’ll look more closely at all of the data from different perspectives to see if this is the case and if there is a Post Election Year seasonal bias of two we can take advantage of.

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3-5

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

The Post-Election Year Returns by Quarter and Annually Pt EY

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Annual

1949

3.0%

-2.6%

14.3%

-6.7%

9.8%

1953

-4.9%

-4.4%

-3.3%

6.0%

-6.8%

1957

-5.6%

7.5%

-10.6%

-5.7%

-14.4%

1961

12.1%

-0.6%

3.1%

7.4%

23.2%

1965

1.7%

-2.4%

7.0%

2.7%

9.0%

1969

-2.3%

-3.7%

-4.7%

-1.0%

-11.4%

1973

-5.6%

-6.5%

4.0%

-10.0%

-17.4%

1977

-8.5%

2.1%

-4.0%

-1.5%

-11.5%

1981

0.2%

-3.5%

-11.4%

5.5%

-9.7%

1985

8.1%

6.2%

-5.1%

16.0%

26.4%

1989

6.2%

7.8%

9.8%

1.2%

27.3%

1993

3.7%

-0.3%

1.9%

1.7%

7.1%

1997

2.2%

16.9%

7.0%

2.4%

31.0%

2001

-12.1%

5.5%

-15.0%

10.3%

-13.0%

2005

-2.6%

0.9%

3.2%

1.6%

3.0%

2009

-11.7%

15.2%

15.0%

5.5%

23.5%

2013

10.0%

2.4%

4.7%

9.9%

29.6%

2017

5.5%

2.6%

4.0%

6.1%

19.4%

2021

5.8%

8.2%

0.2%

10.7%

26.9%

PtEY

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Annual

Avg Since 1949

0.3%

2.7%

1.1%

3.3%

8%

Avg Since 1981

1.5%

6.5%

2.6%

6.5%

16%

# Neg since 1949

8 of 19

8 of 19

7 of 19

5 of 19

7 of 19

# Neg since 1981

3 of 11

2 of 11

3 of 11

0 of 11

2 of 11

The statistics table reflects the same average outcomes as the chart. The 2 and 4th quarters are by far the strongest. The first and third quarters, the weakest. Since 1981, there has not been a 4th quarter loss. The two second quarter losses since 1981 were relatively small at -3.5% and -0.3%. nd

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3-6

Chapter 3: Post-Election Years

Post-Election Years Since 1949 Sorted by Annual Return From worst to best. PtEY

Annual Gain/Loss

1973

-17.4%

1957

-14.4%

2001

-13.0%

1977

-11.5%

1969

-11.4%

Range

# in Range

Post-Election Years by Annual Return

-10% to 20%

5

0% to -10%

2

0% to 10%

4

10% to 20%

1

1981

-9.7%

1953

-6.8%

2005

3.0%

1993

7.1%

1965

9.0%

1949

9.8%

2017

19.4%

1961

23.2%

2009

23.5%

1985

26.4%

2021

26.9%

1989

27.3%

2013

29.6%

20% to 30%

6

1997

31.0%

30% +

1

If you begin a Post-Election Year expecting a gain of 8% or so, you may be in for a big surprise. It could be a very good or a very bad surprise! The results of the 19 PtEYs since 1949 through 2021 range from -17% to a gain of 31%. The returns for the period are skewed from very bad to very good with few in the middle. Seven of the nineteen years or about 35% were losses. This is another clear example of why to be cautious about any average return. The average is not representative of a typical year. However, we will find there are a few strong seasonal tendencies that are consistent that we can take advantage of most years.

AVG 8% 7 of 19 Years = Losses

3-7

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Years by Political Party

PEYs Democrat Presidents

PEYs Republican Presidents

1949

Truman

9.80%

1953

Eisenhower

-6.8%

1961

Kennedy

23.2%

1957

Eisenhower

-14.4%

1965

Johnson

9.0%

1969

Nixon

-11.4%

1977

Carter

-11.5%

1973

Nixon

-17.4%

1993

Clinton

7.1%

1981

Reagan

-9.7%

1997

Clinton

31.0%

1985

Reagan

26.4%

2009

Obama

23.5%

1989

Bush

27.3%

2013

Obama

29.6%

2001

Bush Jr.

-13.0%

2021

Biden

26.9%

2005

Bush Jr.

3.0%

17%

2017

Trump

19.4%

Dem Avg Since 49

17%

Rep Avg Since 49

0.3%

Dem Avg Since 81

24%

Rep Avg Since 81

13%

Democrat administrations have far outperformed Republican administrations. The third quarter has been particularly harsh during Republican administrations. 3-8

Chapter 3: Post-Election Years

1st Term Presidents

2nd Term Presidents

President

Party

Pt EY

Annual

President

Party

Pt EY

Annual

Truman

D

1949

9.8%

Eisenhower

R

1957

-14.4%

Eisenhower

R

1953

-6.8%

Nixon

R

1973

-17.4%

Kennedy

D

1961

23.2%

Reagan

R

1985

26.4%

Johnson

D

1965

9.0%

Clinton

D

1997

31.0%

Nixon

R

1969

-11.4%

Bush Jr.

R

2005

3.0%

Carter

D

1977

-11.5%

Obama

D

2013

29.6%

Reagan

R

1981

-9.7%

Bush

R

1989

27.3%

Clinton

D

1993

7.1%

Bush Jr.

R

2001

-13.0%

Obama

D

2009

23.5%

Trump

R

2017

19.4%

Biden

D

2021

26.8%

Average 1st Term

Average 2nd Term

9.7%

Comments Not much difference between the 1st and 2nd term annual averages. They both have basically the same trend structure, although the 2nd term administrations, which is a small sample size, have had a sharp summer spike.

7.2%

3-9

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post EYs Democrat 1st Term

Post EYs Republican 1st Term

1949

Truman

D

1st

9.80%

1953

Eisenhower

R

1st

-6.8%

1961

Kennedy

D

1st

23.2%

1969

Nixon

R

1st

-11.4%

1965

Johnson

D

1st

9.0%

1981

Reagan

R

1st

-9.7%

1977

Carter

D

1st

-11.5%

1989

Bush

R

1st

27.3%

1993

Clinton

D

1st

7.1%

2001

Bush Jr.

R

1st

-13.0%

2009

Obama

D

1st

23.5%

2017

Trump

R

1st

19.4%

2021

Biden

D

1st

26.9%

Avg

14%

Avg

1%

The Post-Election Year returns have strongly favored a 1st term Democrat. Since 1949, there has only been one annual loss with a Post-Election Year 1st term Democrat but 4 out of 6 years with a Republican loss. I don’t include the data for 1981 onward because the sample size becomes much too small to be meaningful although it does represent the same trend and bias for the Democrats.

3-10

Chapter 3: Post-Election Years

Post EYs Democrat 2nd Term

Post EYs Republican 2nd Term

1997

Clinton

D

2nd

31.0%

1957

Eisenhower

R

2nd

-14.4%

2013

Obama

D

2nd

29.6%

1973

Nixon

R

2nd

-17.4%

Avg

30.3%

1985

Reagan

R

2nd

26.4%

2005

Bush Jr.

R

2nd

3.0%

Avg

-0.6%

The sample size for Post-Election Years by 2nd term and party are too small to be relevant. However, it is better to have the data than not. It may come in handy for a trivia quiz some day!

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3-11

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

The Post-Election Year Charts: Year by Year

Let’s take a look at the chart and comments for each PtEY year since 1949 to see what reliable information could help us make confident, high probability decisions during a Post-Election Year. Viewing the chart for each year will demonstrate the wide variety of trends throughout the years and why to be wary of simply trusting an average which may not represent a typical year.

The Chart Pages Format Each chart shows the SPX weekly closes for each Post-Election Year (PtEY) since 1949. I use weekly closes for the chart because it effectively smooths out some of the volatility and more clearly shows the seasonal trends. The percentage changes for the Year and Seasonal periods use daily closes. Each chart has a horizontal line at the last week ending of the prior year. This week-ending price may not always be the exact year-end price but close enough for our purposes. The heading of the chart shows the year and net change for the PostElection Year (PtEY) as well as the net change for the prior year or the Election Year (EY). Key comments are on the chart at significant highs and lows. Below the chart are additional comments for each year including for seasonal trends.

Post-Election Year Seasonal Trends The average Post-Election Year trend shows the three typical seasonal trends data of the Spring Low to Summer High, Summer High to Fall Low and FallLow to Year End.

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Chapter 3: Post-Election Years

Chart Abbreviations / Terms President Elect: This is the president who was elected the prior year and will take office in late January of the Post-Election Year. The description includes his party and whether it will be his 1st or 2nd term. PtEY: Post-Election Year MEY: Mid-Term Election Year PEY: Pre-Election Year EY: Election Year YO: Year Open. The opening price of the year. YE: Year Ending. Closing price of the year. D: Democratic Party R: Republican Party SL: Spring Low. March to June 19. SH: Summer High. June – September 19. FL: Fall Low. September - November YE: Year End. The last trading day or the last weekly close of the year.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 1949 (EY -2%): 10.3%

President Elect: Truman (D), 2nd Term Spring Low-Summer High (June-September): +14.5%. The bull trend from the mid-June low continued through the summer into the end of the year. Summer High-Fall Low (September-September): -2.1%. How can the summer high and fall low be in the same month? The summer high was made a week before the Fall Equinox. The lowest close of fall was the day of the equinox, September 20! Only a short hesitation in the consistent bull trend into Year End. Fall Low (September 20)-Year End: +10.3%. When there is no distinct correction into a fall low, I take the lowest daily close of the fall period, September 1 – November 1. Comments: A strong fourth quarter, typical of a Post-Election Year. The Year Close was the high of the year. 3-14

Chapter 3: Post-Election Years

Post-Election Year 1953 (EY +12%): -6.8%

President Elect: Eisenhower (R): 1st Term Spring Low-Summer High (April-August): +2.9%. While the S&P closed higher in August, the trend was volatile and essentially sideways for that period. The seasonal trend, such as a Spring Low to Summer High, isn’t necessarily a consistent bull or bear period. It is the net change from the lowest low in the spring period (March – June 19) to the highest high in the summer period (June 20-September 19). Summer High-Fall Low (August-September): -8.8%. Fall Low (September 14)-Year End: +6.5%. Fall doesn’t officially begin until Fall Equinox, usually September 20 or 21. Traditionally, the last day of summer is after Labor Day in early September and I use September as the beginning of fall. Comments: While the year closed negative, 1953 had the typical seasonal trends within the year. 3-15

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 1957 (EY, +2.6%): -14.4%

President Re-Elect: Eisenhower (R): 2nd Term Spring Low-Summer High (March-July): +11.9%. While February had a distinct low, it was too early for a spring low. The trend was consistently bullish from early March into July. I considered the lowest daily close in March as the “spring low.” Summer High-Fall Low (July-October): -20.6%. A typical period of weakness in a PtEY but a brutal decline that eventually continued into Year End. Fall Low (October 11)-Year End: +2.6%. The weekly data above doesn’t show the daily closing low in October was actually lower than the Year End close which resulted in a modest gain from the Fall Low to the Year End. Comments: Many Post-Election Years from the 50’s to early 80’s had losses for the year but still had the typical seasonal trends within the year.

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Chapter 3: Post-Election Years

Post-Election Year 1961 (EY, -3%): +23.2%

President Elect: Kennedy (D), 1st Term. Spring Low-Summer High (March-August): +7.9%. Summer High-Fall Low (August-September): -3.8%. Fall Low (September 25)-Year End: +8.8%. The Fall Low was just a few days after the Fall Equinox and net bull into Year End. Comments: An unusually bullish first quarter for a Post-Election Year. Another year that closed near the high for the year.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 1965 (EY, +14%): +9%

President-Elect: Johnson (D), 1st Term after succeeding Kennedy who was assassinated during his second term. Spring Low-Summer High (March-August): +1.4%: While the S&P took a deep dive to a new low for the year in early summer, it recovered into late summer. In the real world of trading, most would exit a long position when the S&P declined to below the March low in early June and within days continued to below the Year Open. Despite the new low, the very consistent PtEY spring low to summer high seasonal trend re-asserted itself. Summer High-Fall Low (August-October): +3.1%. Contrary to the typical correction made in the third quarter of a PtEY, the S&P continued a relentless bull trend through this period. Fall Low (October 1)-Year End: 2.8%. Comments: Another volatile Spring Low to Summer High period with a new low for the year in between, but a positive close for the season. Unusually strong summer to fall (3rd quarter) season.

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Chapter 3: Post-Election Years

Post-Election Year 1969 (PTEY, +8%): -11.4%

President-Elect: Nixon (R), 1st Term Spring Low-Summer High (March-July): +1.6%. A very volatile period from the Summer Low to Spring High but it did close net positive, typical of the average trend for the second quarter. Summer High-Fall Low (July-October): -7.1%. Fall Low (October 1)-Year End: -0.4%. The only Post-Election Year that closed the year below the Fall Low. Comments: One of the worse PtEYs since 1949 but still had the second quarter (spring-summer) rally and third quarter (summer-fall) decline.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 1973 (EY, +16%): -17.4%

President Re-Elect: Nixon (R), 2nd Term Spring Low-Summer High (May-July): +7%. I certainly don’t want to imply there was a spring low to summer high trade to be made that would have netted you 7%. You should be aware that the spring low to summer high seasonal trend is consistent in a Post-Election Year. The later in the spring that a low has not been made will warn the closer the market may be to make a low followed by a net advance into a “summer high” (June or later). Summer High-Fall Low (July-November): -12.6%. Fall Low (Nov. 30)-Year End: +1.7%. The daily chart shows the lower lows in November and early December. The S&P was sideways to up from the fall lows into the Year End. Comments: This was the worst Post-Election Year since 1949, but the typical seasonal trends were made as usual.

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Chapter 3: Post-Election Years

Post-Election Year 1977 (EY, +19%): -11.5%

President-Elect: Carter (D), 1st Term Spring Low-Summer High (May-July): +5.9%. Summer High-Fall Low (July-November): -10.9%. Fall Low (November 2)-Year End: +4.9%. Comments: Even in a Post-Election Year bear trend, the typical seasonal trends are usually made including the second and fourth quarters the most productive.

____________

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 1981 (EY, +26%): -9.7%

President-Elect: Reagan (R), 1st Term. Spring Low-Summer High (May-August): +2.2%. Summer High-Fall Low (August-September): -14.9%. Fall Low (September 25)-Year End: +8.9%. The Fall Low was within days of the fall equinox. Comments: The “average” Post-Election Year trend is bullish, almost from the beginning of the year to the end of the year. Yet, we have just seen four bearish PtEYs in a row. How can the average be so positive? After 1981, most Post-Election Years had double digit positive returns which brought up the average. Despite these four very bearish PtEYs, the typical seasonal and quarterly trends were still made with a net bull trend from a spring low to a summer high (second quarter +/-), a net bear trend from a summer high to a fall low (third quarter +/-) and net bull trend from a fall low to the yearend (fourth quarter +/-). 3-22

Chapter 3: Post-Election Years

Post-Election Year 1985 (EY, +1.4%): +26.4%

President Re-Elect: Reagan (R), 2nd Term Spring Low-Summer High (March-July): +10.3%. The first correction for the year into March, a frequent month for the Spring Low. Summer High-Fall Low (July-September): -7.2%. Fall Low (September 25)-Year End: +17%. The fall low made just a few days after the fall equinox. Comments: An unusual PtEY with a strong first quarter. The “average” Post-Election Year is sideways to down the first quarter. Another example of why “average” trends are just a starting point to dig deeper into the history of what makes up the “average.”

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3-23

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 1989 (EY, +12.4%): +27.3%

President Elect: H.W. Bush (R), 1st Term Spring Low-Summer High (March-September): +22.4%. Summer High-Fall Low (September-November): -6%. The Fall Low was made in November on the daily closing data. The weekly closing low was in October. Fall Low (November 6)-Year End: +6.3%. Comments: A fall low to the year end is the most consistent and productive seasonal trend in Post-Election Years.

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3-24

Chapter 3: Post-Election Years

Post-Election Year 1993 (EY +4.5%): +7.1%

President-Elect: Clinton (D), 1st Term Spring Low-Summer High (March-August): +7%. The highest daily close for the summer period was August 31. The highest weekly close as shown above was the Week Ending September 10. Summer High-Fall Low (August-September): -2.3%. Fall Low (September 21) – Year End: +3%. Fall low made on the fall equinox. Comments: Very typical seasonal trends throughout the year. How could we know that the first day of fall, September 21, would be the Fall Low for the year? We couldn’t, of course. We will learn later in this chapter, since 1981, every PtEY has closed the year above the September closing low. Once September is complete, we can use that information along with the very consistent seasonal trend of a Fall Low into Year End for a trade strategy.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 1997 (EY +20%): +31%

President Re-Elect: Clinton (D), 2nd Term Spring Low-Summer High (April-August): +30.2%. Summer High-Fall Low (August-October): -8.7%. While the S&P made a higher high between August and October, the trend ended as net bear from the summer high to the fall low. Fall Low (October 27)-Year End: +10.7%. The daily closing data made a lower low in October than shown on the weekly data and had a surge the last few days in December for a more substantial fall low to year end gain than represented by the weekly data. Comments: All of the gains for the year were made by summer, but also a strong fall low to year end recovery.

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3-26

Chapter 3: Post-Election Years

Post-Election Year 2001 (PTEY -10%): -13%

President-Elect: W. R. Bush (R), 1st Term Spring Low-Summer High (April–June): +16.3%. Summer High-Fall Low (June-September): -25%. Fall Low (September 21)-Year End: +19.3%. Another fall low on the fall equinox. Comments: 2001 was a very volatile year and the only year since 1981 that closed with a loss for the year. But the seasonal trends were double digit swings and were made right in the typical seasonal time periods. Bush had the unfortunate timing to be elected in the very early weeks of the Dotcom bust and finish up his second term in 2008 in the final months of the GFR (Great Financial Recession).

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3-27

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 2005 (EY, +9%): +3%

President Re-Elect: W. R. Bush (R), 2nd Term Spring Low-Summer High (April-August): +9.5%. The highest daily summer close was August 3. The highest weekly summer close was the Week Ending September 9 as shown on the weekly chart above. Summer High-Fall Low (August-October): -5.5%. Fall Low (October 13)-Year End: +6.1%. Comments: The PtEY fourth quarter is the most bullish quarter, on average, in the Post-Election Years. Since 1981, a PtEY has not had a losing fourth quarter.

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3-28

Chapter 3: Post-Election Years

Post-Election Year 2009 (EY, -39%): +23.5%

President Elect: Obama (D), 1st Term Spring Low-Summer High (March-September): +57%. The Summer High was made the last official day of summer. Summer High-Fall Low (September-October): -3.7%. There was hardly a summer high or fall low but September was the high close before the fall equinox and October 2 low was the lowest daily close in the fall period. Fall Low (October 2)-Year End: +7.6%. Comments: A recovery for the record books! Only one correction of significance from the March low (early June to early July), then a consistent bull trend into year end.

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3-29

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 2013 (PEY, +13%): +29.6%

President Re-Elect: Obama (D), 2nd Term Spring Low-Summer High (April-September): +10.6%. There wasn’t really what we would normally consider a “spring low” so I took the lowest daily close in the summer period, April 18, as the spring low. Summer High-Fall Low (September-October): -2.9%. Only a mild, threeweek correction. Fall Low (October 8)-Year End: +11.7%. Comments: The first quarter of a PtEY is, on average, sideways to down with an average bullish second quarter. Since 1981, there has only been one PtEY second quarter loss. Does an unusually strong PtEY first quarter warn of an unusually bullish second quarter like in 2013? Viewing the quarterly data earlier in this chapter, if a PtEY first quarter is unusually bullish (high single to double digits), the second quarters have not been unusually bullish.

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Chapter 3: Post-Election Years

Post-Election Year 2017 (EY, +9.5%): +19.4%

President Elect: Trump (R), 1st Term Spring Low-Summer High (April-August): +6.5%. Summer High-Fall Low (August-September): +0.6%: The bull trend was so strong this year there was not a typical summer high to fall low dip. The lowest close in the fall was September 26, just after the fall equinox. Then straight up into the end of the year. Fall Low (September 25)-Year End: +7.1%. Comments: While the first and third quarters were net positive, they were considerably weaker than the second and fourth quarters, typical of a PtEY.

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3-31

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year 2021 (EY, +16%): +26.9%

President-Elect: Biden (D), 1st Term Spring Low-Summer High (March–September): +16.7%. Summer High-Fall Low (September-October): -5.2%. Fall Low (October 4)-Year End: +10.8%. Comments: An unusually strong first quarter. While PtEY first quarters are, on average, the weakest quarter, don’t automatically dismiss them of trading opportunities.

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3-32

Chapter 3: Post-Election Years

Post Election Years Double News Events

What are “news events” and how can we incorporate them into our trade strategies? First, let’s define by what I mean by a “news event”. It is an objective, technical event that would be reported in the financial news to the public. For example, if the stock market declines below or exceeds the Year Opening later in the year, it will be widely reported in the financial news. In some circumstances, if the stock market makes a new high or low for the year, it usually will be headline financial news. The further into the year a market crosses the Year Opening or makes a new high or low for the year, the more newsworthy the event should be. A stock index that declines to below the Year Open is usually a dramatic news event. Over 60% of Americans own stock. News that is depressing for 60% of Americans is a noteworthy event. Failed expectations, such as the belief that stocks always go up, is a pessimistic event. A new high for the year is usually not an important news event in a bull market because it is expected and usually not dramatic. A new high for the year after the market has been at a loss for the year is newsworthy. There may be many significant news events during the year that will affect market trends and optimistic or pessimistic outlooks which not only cannot be predicted, but the reaction to them may be unpredictable depending on other factors in the economy. Financial news related to interest rates, unemployment, deficits etc. are not considered for our purposes. Political, international or social news is not considered. Such events may or may not be considered positive or negative. But when a stock index declines below the Year Open showing a loss for the year, it is always newsworthy. If the S&P has been negative for the year, but advances above the Year Open to be positive, it will be a headline news event. It is not the single event that is usually predictive of the follow through, but what I describe as Double Negative or Double Positive News Events (DNN / DPN) that have more predictable follow through to the second news event.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

The Double News Events Charts and Comments Following are the charts and comments for just those Post-Election Years with Double Positive or Double Negative News Events. A Double Negative News Event (DNNE) is two consecutive negative news events and is usually followed by a continued bear trend for weeks and often into the end of the year. A Double Positive News Event (DPNE) is two consecutive positive news events and is usually followed by a bull trend for weeks and often into the end of the year. These are logical outcomes. It is as if the second consecutive negative event confirms to the trading public the negative trend of the market and liquidation follows, or at best, buyers stop buying. The psychology becomes a negative feedback loop; selling begets selling. It is just the opposite with two consecutive positive events. They confirm to the public the strength or recovery of the market, which brings in buying power to continue the bull trend and, in some cases, to accelerate the trend, often into the year-end.

The Double News Events Charts: Year by Year For the Post-Election Years since 1949, there were three years with Double Negative News Events and three with Double Positive News Events. The charts that follow include each Post-Election Year with a Double News Event. The percentage in the chart title is the percent change from the second event to the Year End. The Year Close is a completely objective event. There were other positive and negative news events other than the ones noted, but they did not represent two consecutive positive or negative news events.

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Chapter 3: Post-Election Years

1953: Double Negative News Events (+3%)

The Setup: Decline below the Year Opening into the February low followed by a 4 week advance into March 20 high (Spring Equinox) that did not trade above the Year Open. Neg News Event #1: April 2, close below the February low. “The S&P closed at new lows for the year, down almost 5% for the year.” News News Event #2: From late April to late May, the S&P had the greatest advance in time and price since the Year Open, bringing hope to traders across the country. In early June their optimism was smashed with the S&P declining to a new low for the year. “Investors got more bad news today as the S&P made a new low for the year.” New Low: Following the second negative news event, the S&P declined 5% into a September low (Fall Equinox) and then rallied into year-end, closing up 3% from the DNNE. Most Double Negative News Events are followed by a net bear trend into Year End. It is unusual for the S&P to close the year above the second negative news event.

3-35

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1957: Double Negative News Events (-7%)

The Setup: The S&P started off the year in negative territory but rallied sharply from the Feb. low to above the year open in April. Positive News Event: Week ending May 10, the S&P traded above the Year Open to put it positive for the year. There was not a second consecutive positive news event. Negative News Event #1: The S&P turned around quickly to decline below the Year Open in August to put it back into negative territory for the year. Failed expectation for investors. “Investors were again disappointed today as the S&P fell back into negative territory for the year.” Negative News Event #2: From the August return to negative returns for the year, the S&P declines persistently to a new low for the year, below the Feb. low. “More bad news for investors today. The S&P plummeted to a new low for the year, down over 7% for the year.” The Follow Through: Following the second negative news event, the S&P declined 7% into Year End. 3-36

Chapter 3: Post-Election Years

1965: Double Positive News Event (+2%)

The Setup: The S&P started the year off strong with an advance into midMay. But then reversed sharply to trade below the Year Open in late June. Negative News Event: The decline below the Year Open in late June put the stock market at a loss for the year. Positive News Event #1: The S&P oscillates around the Year Open and then exceeds the July high in early August. “The S&P gained more ground into positive territory today, advancing above the July high.” Positive News Event #2: The S&P exceeds the May high of the year in August and continues net bull into Year End. “The S&P continued its powerful run to a new high for the year, recovering it’s early year losses.” The Follow Through: Following the second PNE, the S&P advanced 2% into Year End with a close near the high of the year.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1969: Double Negative News Event (-5%)

The Setup: The S&P began the year with a decline into a mid-March low. While this is not good news, it is not a discrete event. From the mid-March low, the SP advanced to above the Year Open, a positive news event. Positive News Event: Closed above the Year Open for the first time since the beginning of the year. Negative News Event #1: Two weeks later, the S&P declined back below the Year Open. “Not much relief for investors today as the S&P quickly reversed back to negative territory for the year.” Negative News Event #2: The week ending June 20, the S&P closed below the March low for a new extreme loss for the year. “Investors were shocked again today as losses continued to mount with a new low for the year.” The Follow Through: While the S&P traded in a broad trading range into Nov., it declined 5% from the DNE into Year End.

3-38

Chapter 3: Post-Election Years

1997: Double Positive News Events (+23%)

The Setup: The S&P advanced from the Year Open to a high in mid-Feb. followed by a sharp decline to below the Year Open in late April. Negative News Event: The S&P declines to a new low for the year below the Year Open. There was not a second consecutive negative news event. Positive News Event #1: The S&P rebounded just one week later back above the Year Open. “The S&P rebounded last week to close back in positive territory giving investors a positive outlook for the year ahead.” Positive News Event #2: In early May, the S&P closes above the Feb. high for a new high for the year. “Investors celebrated today as the S&P made a new high for the year.” The Follow Through: The S&P continued a net bull trend into Year End advancing 23% from the second PNE.

3-39

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2009: Double Positive News Event (+14%)

The Setup: The S&P quickly declined to below the Year Open for another 26% into early March! Negative News Event: After a brief pop in early January, the S&P quickly reverses to below the Year Open and continues the bear trend from the prior year for another 27% decline into early March! “The carnage in the stock market continues in the greatest bear trend since the great depression.” Positive News Event #1: In early May, the S&P rebounded to close above the Year Open after the 26% plunge earlier in the year. ’Investors are ecstatic as the S&P continues it rally from the March low into positive territory.” Positive News Event #2: In June, the S&P reversed and declined for a few weeks to near the Year Opening, but then rebounded to above the mid-June high for a new high for the year. “The S&P continued its strong recovery for a new high for the year.” The Follow Through: Following the second PNE, the S&P advanced another 14% in a relentless bull trend into Year End.

3-40

Chapter 3: Post-Election Years

Post-Election Years: Double News Events: 1951-2022 Double Negative News Events

1953

2nd Negative June

Extreme Month Sept.

1957

Sept

1969

June

Year

Double Positive News Events

1965

2nd Positive Oct.

Dec

Year End 2%

-7%

1997

May

Dec

23%

-5%

2009

July

Dec

14%

Year End +3%

Dec. Dec

Ext -5%

Year

Ext

Double Negative News Events There were three years with DNNEs. In every one of those years, the S&P traded at least 5% lower following the second negative news event. This makes sense. All of the second negative news events were made in June or later. Each seemed to cause a period of selling as traders understandably reacted adversely to the second negative news event. In 1953, the S&P closed the year slightly above the second negative news event, after first declining 5% or more.

Double Positive News Events There were three DPNE years. In each case, the S&P continued to advance and closed up at least modestly on the year with the high for the year in December in each case. The sample size for each is small, but I don’t think they are irrelevant because of the logic for the follow through to each Double News Event. If the historical bias is strong for at least a 5% decline following the second Double Negative News Event and for a higher close into Year End following a Double Positive News Event, this information can be used to develop a specific trade strategy following the second event.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year Seasonal Trends

The chart below is the average Post-Election Year trend. On average, the first and third quarters are the weak periods of a Post-Election Year. On average, the second and fourth quarters are the strongest periods for the year. We never make a trading decision based just on an average trend. Let’s break down the seasonal trends for a more detail how this information may be useful.

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Chapter 3: Post-Election Years

Post-Election Year: First Quarter The average of the first quarter of the Post-Election Years since 1949 is sideways to modestly up. It is the worst performing quarter of Post-Election Years. I don’t include this period as a seasonal trend because the returns are modest and almost half of the first quarter returns are negative. There is no consistent seasonal trend or trade advantage in the first quarter.

Seasonal Dates The dates of the seasonal lows and highs are fairly evenly spread over broad periods. It is impossible to identify a specific date for entry or exit for a “seasonal” trade. An average date is as useless as an average price. The practical application of a seasonal trend is to be aware of the range of dates with a consistent history of making a low or high followed by an advance or decline into a relatively narrow range of dates. For the seasonal studies below, I consider a Spring Low anytime from March 1st to June 19. While spring doesn’t officially begin until March 2021, the Spring Equinox, the first of March is often considered the beginning of Spring in most regions. While summer officially begins with the summer solstice (June 20 or 21), the first day of summer is traditionally considered June 1, just after Memorial Day (late May) and the end of summer with the fall equinox (September 20 or 21). While fall officially begins with the fall equinox (September 20 or 21), the end of summer and beginning of fall is traditionally considered the day after Labor Day, the first Monday in September. Fall officially continues to the winter solstice (December 20 or 21).

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Years: Spring Low – Summer High SL: Spring Low. March to June 19. While the spring equinox (March 20 or 21) is officially the start of spring, I include the full month of March as spring. SH: Summer High. June to September 19. While summer officially begins with the summer solstice (June 20 or 21), the first day of summer is traditionally considered June 1, just after Memorial Day (late May). YE: Year End. The last trading day of the year.

Spring Low to Summer High Seasonal Trend

Pt EY

SL

SH

SL-SH

SH-YE

1949

6/13

9/12

14.5%

8.0%

1953

4/23

8/3

2.9%

-0.4%

made in March or April (15 of

1957

3/26

7/12

11.9%

-18.5%

19).

1961

3/14

8/21

7.9%

4.7%

1965

3/29

8/31

1.4%

6.0%

Low to Summer High periods

1969

3/14

7/3

1.6%

-7.5%

since 1949. The average gain

1973

5/21

7/26

7.0%

-11.2%

1977

5/31

7/19

5.9%

-6.6%

1981

5/11

8/10

2.2%

-7.5%

1985

3/15

7/16

10.3%

8.5%

1989

3/23

9/1

22.4%

-0.1%

Summer High to Year End since

1993

4/26

8/31

7.0%

0.6%

1981 is a modest 2%.

1997

4/11

8/6

30.2%

1.1%

2001

4/4

6/5

16.3%

-10.6%

2005

4/20

8/3

9.5%

0.3%

2009

3/9

9/21

57.0%

8.2%

which is usually followed by

2013

4/18

9/17

10.6%

8.4%

several weeks of net advance

2017

4/13

8/7

6.5%

7.8%

into July to September.

2021

3/24

9/2

16.7%

5.1%

since 49

Neg: 0

12.7%

-0.2%

since 81

Neg 0

16.8%

2.0%

3-44

Most of the Spring Lows were

There were no negative Spring

has increased significantly since 1981, with most years well into the double digits for this period. The average gain from the

Beginning in early March, apply your technical analysis to help identify when the S&P is in a position for a potential low,

Chapter 3: Post-Election Years

Post-Election Years: Summer High to Fall Low SH: Summer High (June to Sept. 19) – FL: Fall Low (Sept. to Dec. 19) Year

SH

FL

SH-FL

1949

9/20

11/15

10.3%

1953

8/3

9/14

-8.8%

1957

7/12

10/22

-20.6%

The Summer High to Fall Low

1961

8/21

9/25

-3.8%

period represents, on average,

1965

8/31

10/1

3.1%

1969

7/3

10/1

-7.1%

1973

7/26

11/30

-12.6%

1977

7/19

11/2

-10.9%

are fairly evenly spread out in

1981

8/10

9/25

-14.9%

their respective periods which

1985

7/16

9/25

-7.2%

doesn’t lend itself to a specific

1989

9/1

11/6

-6.0%

trade strategy, from my point of

1993

8/31

9/21

-2.3%

view.

1997

8/6

10/27

-8.7%

2001

6/5

9/21

-25.0%

aware this is usually a period of

2005

8/3

10/13

-5.5%

relative weakness and when the

2009

9/21

10/30

-3.7%

Fall Low is complete, the S&P

2013

9/17

10/8

-2.9%

generally trends into the Year

2017

8/7

9/25

0.6%

2021

9/2

10/4

-5.2%

13 of 19 Negative

Since 1949

-6.9%

8 of 11 Negative

Since 1981

-7.3%

Summer High to Fall Low Seasonal Trend

the early part of the third quarter to the early part of the fourth quarter. The beginning and ending dates for this period

The takeaway is to be

End. Trade strategies would be best focused on identifying when the S&P is in a position to

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3-45

complete a fall low.

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Years: Fall Low to Year End FL: Fall low. Sept. to Dec. – YE: The last trading day of the year. Year

FL

FL-YE

1949

11/15

6.5%

Fall Low to Year End Season Trend

1953

9/14

9.3%

1957

10/11

2.6%

Most Fall Lows were made in September or October (18 of 19).

1961

9/25

8.8%

1965

10/1

2.8%

1969

10/1

-0.4%

1973

11/30

1.7%

1977

11/2

4.9%

1981

9/25

8.9%

1985

9/25

17.0%

1989

11/6

6.3%

1993

9/21

3.0%

1997

10/27

10.7%

2001

9/21

19.3%

2005

10/13

6.1%

2009

10/30

7.6%

2013

10/8

11.7%

2017

9/25

7.1%

2021

10/4

10.8%

18 of 19 positive

Since 1949

7.6%

11 of 11 Positive

Since 1981

9.9%

Since 1949, only one year did not have a gain from the Fall Low to Year End (1969). Since 1981, every year closed well above the Fall Low. A Fall Low to Year End bull trend is the most consistent seasonal tendency for Post-Election Years. Beginning in September, look for technical setups that put the market in a position to complete a low that has typically been followed by a bull trend into the end of the year.

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3-46

Chapter 3: Post-Election Years

Post-Election Years: Fall Monthly Lows to Year End The Fall Low to Year End study above shows this seasonal period to be consistently bullish with an average gain of almost 8% for the approximately two-month period and only one small loss for the period. The Fall Low is not an objective period. Most have been made in September or October. The table below shows the change from the lows of the months from September, October and November into the Year End. It also shows if the low of the respective month was exceeded before the end of the year.

Post-Election Years: Fall Monthly Lows to Year End Year

Sept L-YE

Exc?

Oct L-YE

Exc?

Nov L-YE

Exc?

1949

12.4%

N

10.0%

N

6.5%

N

1953

9.3%

N

6.0%

N

2.1%

N

1957

-5.7%

Y

2.6%

N

1.5%

N

1961

8.8%

N

7.2%

N

4.2%

N

1965

6.0%

N

2.8%

N

1.0%

Y

1969

-1.0%

Y

-0.4%

Y

-0.9%

Y

1973

-5.3%

Y

-9.8%

Y

2.0%

Y

1977

0.1%

Y

4.5%

Y

4.9%

N

1981

8.7%

N

4.7%

N

2.0%

N

1985

16.9%

N

16.2%

N

10.5%

N

1989

3.0%

Y

5.9%

Y

6.3%

N

1993

3.0%

N

1.6%

Y

2.0%

N

1997

4.6%

Y

10.7%

N

7.1%

N

2001

19.3%

N

8.3%

N

5.9%

N

2005

3.2%

Y

6.1%

N

3.8%

N

2009

12.1%

N

8.8%

N

6.9%

N

2013

12.7%

N

11.7%

N

5.8%

N

2017

8.8%

N

5.7%

N

4.3%

N

2021

10.7%

10.8%

6.7%

N 5 of 19 Y

4.4%

AVG Since 49

Y 8 of 19 Y

N 3 of 19 Y

Years Neg

3 of 19

AVG Since 81

9.4%

Years Neg

0 of 11

6.0% 2 of 19

4 of 11 Y

8.2% 0 of 11

3-47

4.2% 1 of 19

2 of 11 Y

5.4% 0 of 11

0 of 11 Y

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends Since 1981, every year has closed above the lows of September and October and November. This does not mean that the S&P did not trade below the low of the respective month before the end of the year. Only that the Year End close was above the lows of the respective months. This information has very practical application. The first of October, identify the lowest daily close of September. The overwhelming tendency of Post-Election Years since 1949 and especially since 1981 has been to close the year above that level. Do the same on the first of November and December.

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Chapter 3: Post-Election Years

Post-Election Years: Santa Claus Rally

The “Santa Claus Rally” is the potential advance from Thanksgiving to Christmas. It is a logical period for a stock market advance during the busiest retail buying period of the year. But, it is not a consistent and reliable rally for every year within the election cycle. Because it is anticipated every year, we want to have the data for each of the four years in an election cycle to see if there is actually a Santa Claus rally we can take advantage of.

Post-Election Years Santa Claus Rally TG: Thanksgiving - C: Christmas - YE: Year End Year

TG-C %

TG - YE %

C-YE %

1949

2.8%

3.4%

0.6%

1953

1.2%

1.2%

0.0%

1957

-4.4%

-3.2%

1.2%

1961

0.0%

-0.3%

-0.3%

1965

0.3%

0.5%

0.2%

1969

-2.2%

-1.3%

0.9%

1973

-6.9%

-2.2%

4.7%

1977

-1.9%

-1.5%

0.4%

1981

-1.3%

-1.2%

0.1%

1985

2.3%

4.4%

2.1%

1989

1.6%

3.4%

1.8%

1993

1.1%

1.0%

-0.1%

1997

-2.0%

2.0%

4.0%

2001

0.7%

1.0%

0.3%

Since 1949, Post-

2005

0.2%

-1.4%

-1.6%

Election Years have not

2009

1.4%

0.4%

-1.0%

demonstrated a Santa

2013

1.4%

2.3%

0.9%

Claus rally seasonal

2017

3.3%

3.0%

-0.3%

tendency that can be

2021

0.5%

1.4%

0.9%

taken advantage of.

Avg since 1949

-0.1%

0.7%

0.8%

Avg since 1981

0.8% 11 of 19 1% or less 5 of 11 1% or less

1.5% 11 of 19 1% or less 5 of 11 1% or less

0.6% 14 of 19 1% or less 8 of 11 1% or less

Since 1949 Since 1981

3-49

No Useful Santa Claus Rally The Thanksgiving to Christmas return, on average, is less than 1%. Most years show a 1% or less change. The Thanksgiving to Year End average gain is not much better. No years show any significant gains.

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Year Key Factors Table

A summary table of the PtEY events shown on the yearly charts for each Post-Election Year since 1949. Post-Election Years Key Factors

1949 +10.3%

President Elect: Truman (D), 2nd Term Spring Low-Summer High (June-September): +14.5%. Summer High-Fall Low (September-September): -2.1%. Fall Low (September 20)-Year End: +10.3%.

1953 -6.8%

President Elect: Eisenhower (R), 1st Term Spring Low-Summer High (April-August): +2.9%. Summer High-Fall Low (August-September): -8.8%. Fall Low (September 14)-Year End: +6.5%.

1957 -14.4%

President Re-Elect: Eisenhower (R), 2nd Term Spring Low-Summer High (March-July): +11.9%. Summer High-Fall Low (July-October): -20.6%. Fall Low (October 11)-Year End: +2.6%. Double Negative News Events: Sept. to YE: -7%

1961 +23.2%

President Elect: Kennedy (D), 1st Term. Spring Low-Summer High (April-August): +4.7%. Summer High-Fall Low (August-September): -3.8%. Fall Low (September 25)-Year End: +8.8%.

1965 +9%

1969 -11.4%

President-Elect: Johnson (D), 1st Term after succeeding Kennedy who was assassinated during his second term. Spring Low-Summer High (March-August): +1.4%: Summer High-Fall Low (August-October): +3.1%. Fall Low (October 1)-Year End: +2.8%. Double Positive News Events. Oct. to YE, +2%. President-Elect: Nixon (R), 1st Term Spring Low-Summer High (March-July): +1.6%. Summer High-Fall Low (July-October): -7.1%. Fall Low (October 1)-Year End: -0.4%. Double Negative News Events. June to YE, -5% 3-50

Chapter 3: Post-Election Years

1973 -17.4%

President Re-Elect: Nixon (R), 2nd Term Spring Low-Summer High (May-July): +7%. Summer High-Fall Low (July-November): -12.6%. Fall Low (Nov. 30)-Year End: +1.7%.

1977 -11.5%

President-Elect: Carter (D), 1st Term Spring Low-Summer High (May-July): +5.9%. Summer High-Fall Low (July-November): -10.9%. Fall Low (November 2)-Year End: +4.9%.

1981 -9.7%

President-Elect: Reagan (R), 1st Term. Spring Low-Summer High (May-August): 2.2%. Summer High-Fall Low (August-September): -14.9%. Fall Low (September 25)-Year End: 8.9%. News Events: Double Negative. Aug. to Sept. low (-9%) / YE (1.2%)

1985 +26.4%

1989 +27%

1993 +7.1%

1997 +31%

President Re-Elect: Reagan (R), 2nd Term Spring Low-Summer High (March-July): +10.3%. Summer High-Fall Low (July-September): -7.2%. Fall Low (September 25)-Year End: +17%. President-Elect: H.W. Bush (R), 1st Term Spring Low-Summer High (March-September): +22.4%. Summer High-Fall Low (September-November): -6%. Fall Low (November 6)-Year End: +6.3%. President-Elect: Clinton (D), 1st Term Spring Low-Summer High (March-September): +7%. Summer High-Fall Low (August-September): -2.3%. Fall Low (September 21) – Year End: +3%. President Re-Elect : Clinton (D), 2nd Term Spring Low-Summer High (April-August): +30.2%. Summer High-Fall Low (August-October): -8.7%. Fall Low (October 27)-Year End: +10.7%.

3-51

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2001 -13%

2005 +3%

President-Elect: W. R. Bush (R), 1st Term Spring Low-Summer High (April – June): +16.3%. Summer High-Fall Low (June-September): -25%. Fall Low (September 21)-Year End: +19.3%. Another fall low on the fall equinox. Double Negative News Events. Early Sept. – Sept. low (-11%) / YE (+1%) President Re-Elect: W. R. Bush (R), 2nd Term Spring Low-Summer High (April-August): +9.5%. Summer High-Fall Low (August-October): -5.5%. Fall Low (October 13)-Year End: +6.1%.

2009 +23.5%

President Elect: Obama (D), 1st Term Spring Low-Summer High (March-September): +57%. The Summer High made the last official day of summer. Summer High-Fall Low (September-October): -3.7%. There was hardly a summer high or fall low but September was the high close before the fall equinox and October 2 low was the lowest daily close in the fall period. Fall Low (October 2)-Year End: +7.6%. Double Positive News Events. July – YE (+14%)

2013 +29.3%

President Re-Elect: Obama (D), 2nd Term Spring Low-Summer High (April-September): +10.6%. Summer High-Fall Low (September-October): -2.9%. Fall Low (October 8)-Year End: +11.7%.

2017 +19.4%

President Elect: Trump (R), 1st Term Spring Low-Summer High (April-August): +6.5%. Summer High-Fall Low (August-September): +0.6%: The bull trend was so strong this year there was not a typical summer high to fall low dip. The lowest close in the fall was September 26, just after the fall equinox. Then straight up into the end of the year. Fall Low (September 25)-Year End: +7.1%.

2021 +26.9%

President-Elect: Biden (D), 1st Term Spring Low-Summer High (March–September): +16.7%. Summer High-Fall Low (September-October): -5.2%. Fall Low (October 4)-Year End: +10.8%. 3-52

Chapter 3: Post-Election Years

Post-Election Year Key Factors and Trade Strategies

Post-Election Years, on average, are the second strongest in the Election Cycle after the Pre-Election Years, particularly since 1981.

Average Returns for Each Four-Year Election Cycle and Each Year Within the Four-Year Cycle Post Election Years

Mid-Term Election Years

Pre Election Years

Election Years

Since 1949

8%

5%

17%

7%

Avg of the 4-Year Election Cycles 40%

# Neg Years

7 of 19

8 of 19

1 of 18

3 of 18

3 of 18

Since 1981

16%

4%

15%

4%

44%

# Neg Years

2 of 12

5 of 12

1 of 11

3 of 18

2 of 18

S&P Returns

Post Election Year: Quarterly and Annual Average Returns 1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Annual

Avg Since 1949

0.3%

2.7%

1.1%

3.3%

8%

Avg Since 1981

1.5%

6.5%

2.6%

6.5%

16%

# Neg since 1949

8 of 19

8 of 19

7 of 19

5 of 19

7 of 19

# Neg since 1981

3 of 11

2 of 11

3 of 11

0 of 11

2 of 11

The second and fourth quarters have the highest average return and fewest losing quarters. Since 1981, the fourth quarter has not had a loss. In general, look for go-long setups in the Post-Election Years, particularly during the 2nd and 4th quarters. See pages 3-4 – 3-6 for chart and details.

____________

3-53

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post Election Years and the Political Parties Democrat administrations have substantially outperformed Republicans by average return and highest percentage of positive years whether first or second term.

Post Election Year: Average Returns by Political Party Democrat Avg Since 49

17%

Republican Avg Since 49

0.3%

Democrat Avg Since 81

24%

Republican Avg Since 81

13%

In general, be aggressive on the long side during a Democrat administration, particularly the second half of the year. Democrats have not had the 3rd quarter slump that has been typical of a Post-Election Year. On the other hand, during a Republican administration the data shows you should be wary during the 3rd quarter of a Post-Election year. See page 3-8 for chart and details.

Post-Election Year: Average Returns by 1st or 2nd Term Pt EY 1st Term Presidents

Pt EY 2nd Term Presidents

Average 1st Term: 7.2%

Average 2nd Term: 9.7%

There is little difference of the average return for 1st or 2nd term administrations. Neither have had a significant edge over the other, on average. See page 3-9 for chart and details.

____________

3-54

Chapter 3: Post-Election Years

Post Election Year by 1st Term Political Party Post EYs Democrat 1st Term

Post EYs Republican 1st Term

Average 14%

Average 1%

Post-Election Years of Democrat administrations are typically much stronger than for 1st Term Republicans. The sample size for 2nd term by political party is too small to be relevant and not included. See page 3-10 for chart and details.

Post-Election Year Seasonal Trends Post-Election Years have two consistent seasonal trend, Spring Low to Summer High and Fall Low to Years End. The Spring Low to Summer High trend has been position in every year since 1949 and the Fall Low to Year End trend has been positive 18 0f the 19 years since 1949. These are two periods to take advantage.

Post-Election Year Spring Low – Summer High Spring Low to Summer High

SH-YE

Neg Years: 0

Avg since 49

12.6%

-0.2%

Neg Years: 0

Avg since 81

16.8%

1.8%

Most of the Spring Lows were made in March or April (15 of 19). Every Post-Election Year Spring Low to the Summer High has been positive since 1949. Beginning in early March, apply your technical analysis to help identify when the S&P is in a position for a potential low, which is usually followed by several weeks of net advance into July to September. See page 3-44 for details.

____________

3-55

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Post-Election Years: Summer High to Fall Low 6 of 19 Positive

Avg Since 1949

-6.9%

3 of 11 Positive

Avg Since 1981

-7.3%

While this is a period of relative weakness typical for a Post-Election Year, almost 1/3 of the years have been positive. The Summer High to Fall low period is not consistent enough to be helpful with a specific trade strategy. See page 3-45 for details.

Post-Election Years: Fall Low to Year End Since 1949

18 of 19 positive

Avg 7.6%

Since 1981

11 of 11 Positive

Avg 9.9%

A Fall Low to Year End bull trend is the most consistent seasonal tendency for Post-Election Years. Most fall lows are made in September or October (18 of 19). Beginning in September, look for technical setups that put the market in a position to complete a low that could be followed by a bull trend into the end of the year. See page 3-46 for details.

____________

3-56

Chapter 3: Post-Election Years

Post-Election Years: Fall Monthly Lows to Year End Sept L to YE

Oct L to YE

Nov L to YE

AVG Since 49

6.7%

6.0%

4.2%

# Years Neg

3 of 19

2 of 19

1 of 19

# Years Exceeded

8 of 19

5 of 19

3 of 19

AVG Since 81

9.4%

8.2%

5.4%

#Years Neg

0 of 11

0 of 11

0 of 11

# Years Exceeded

4 of 11

2 of 11

0 of 11

Since 1981, every year has closed above the lows of September and October and November. Some years traded below the respective monthly lows before the end of the year, but no year has closed below any of these three monthly lows. See page 3-47 for details.

Post-Election Years: Santa Claus Rally Eleven of nineteen years were negative from Thanksgiving to Christmas, so don’t count on a Santa Claus Rally during a Post-Election Year. There is no seasonal edge for a Santa Claus Rally to take advantage of in Post-Election Years. See Page 3-49 for more details.

____________

3-57

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Double Negative and Positive News Events

Double Negative or Positive News Events have been infrequent in PostElection Years as I define them. But the follow through has been consistent when they are made. The S&P has declined at least 5% following the second Double Negative News Events in Post-Election Years. The S&P has advanced into year end from 2% to 23% following the second Double Positive News Event. This information will be useful to include in a trade strategy should a Double News Event be made in any Post-Election Year, especially following a DPNE which has always been followed by a higher year end close. See page 3-33 for charts and details.

____________

3-58

Chapter 3: Post-Election Years

Trader’s Post-Election Year Calendar Democrat Vs Republican Administrations In general, be aggressive on the long side during a Democrat administration, particularly the second half of the year. Democrats have not had the 3rd quarter slump that has been typical of a Post-Election Year. On the other hand, during a Republican administration the data shows you should be wary during the 3rd quarter of a Post-Election year. Also, be aware that Post-Election Years with 1st Term Democrats have far outperformed 1st Term Republicans. See pages 3-8 to 3-10 details.

1st Quarter On average, the first quarter of a Post-Election Year is the worst performing quarter of the year. No advantage for the trader until March. See pages 3-4 (chart) and 3-6 (table) for details.

March On average, the Post-Election Years have a strong second quarter with a consistent Spring Low to Summer High net bull trend. There were no negative years from the Spring Low to the Summer High. The Spring Lows have been made over a relatively wide period with most made from the second half of March into April. Beginning in early March, apply your technical analysis to help identify when the S&P is in a position for a potential low, which is usually followed by several weeks of net advance into July to September. See page 3-44 for details.

June Begins the period for a Summer High: June – September. About one-third of the PtEYs since 1949 have been positive from summer into the fall. The summer to fall period, the third quarter of the year, is more often sideways to down for several weeks into the Fall Low. There is no seasonal edge to take advantage of a Summer High to Fall Low in Post-Election Years. See page 3-45 for details. 3-59

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

September Since 1949, there has been only one Fall Low to Year End period that was not a gain. The average advance has been 7.6%. Since 1981, every year has had a positive gain since the Fall Low. The Fall Low to Year End bull trend, covering the fourth quarter, has been the most consistent Post-Election Year seasonal tendency since 1949. Beginning in September, apply your technical analysis to help identify when the S&P is in a position for a potential low, which is usually followed by a net bull trend into the Year End. See page 3-46 for chart and details.

September – November Since 1981, every Post-Election Year has closed above the lows made in September and October and November. Some years traded below the respective monthly lows before the end of the year but, every year since 1981 closed the year above the lowest close of each of these months. See page 3-47 for chart and details.

Santa Claus Rally? There is no consistent trend in a Post-Election Year from Thanksgiving to Christmas that can be advantageous to a trader. See page 3-49 for chart and details. __________

3-60

Chapter 3: Post-Election Years

Post-Election Year Opportunities

While the average return of the Post-Election Years is positive, the returns are spread over a wide range including a few years with a loss for the year. What we have found is there are two seasonal periods in past Post-Election Years with a strong positive return to take advantage of. There are also periods of consistently low returns and average losses to avoid. As with each year within the Election Cycle, having the objective data for each year provides us with opportunities to take advantage of and incorporate the data into our trading plan. __________ Keep Up To Date with the current position of the Stock Market and Election Cycle at www.DTElectionCycle.com. __________

3-61

Chapter 4:

Mid-Term Election Years

Table of Contents What You’ll Learn About Mid-Term Election Years .................................. 4-2 Mid-Term Election Years in the Election Cycle ......................................... 4-3 Mid-Term Election Year Average Cycle .................................................... 4-5 All Mid-Term Election Years Chart ........................................................... 4-6 Mid-Term Election Years by Political Party ............................................ 4-10 Mid-Term Election Year Charts: Year by Year ........................................ 4-13 Double News Events Charts and Trade Strategies ................................... 4-34 MEYs: Double News Events: 1950-2022 ................................................. 4-48 Mid-Term Election Year Seasonal Trends ............................................... 4-50 Mid-Term Election Year Key Factors Table ............................................. 4-57 Mid-Term Election Years Summary: Key Factors and Trade Strategies ... 4-59 Trader’s Mid-Term Election Year Calendar ............................................. 4-63

4-1

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

What You’ll Learn About Mid-Term Election Years

➢ The Mid-Term Election Year quarter that has had the highest return and fewest losses. ➢ If a political party or the presidential term has had an overwhelming advantage during MEYs. ➢ The seasonal period in a MEY that have had a distinct positive advantage. ➢ Seasonal periods during a MEY have no seasonal advantage. ➢ A period during a MEY that is usually thought to be positive but turns out to have not had enough of a positive bias to be helpful. ➢ At the end of the chapter, a Mid-Term Election Year calendar to prepare you in advance for the high probability biases to incorporate into your trade plan.

__________

4-2

Chapter 4: Mid-Term Election Years

Mid-Term Election Years in the Election Cycle

The Mid-Term Election Year is the worst performing year of the four-year election cycle. The chart below is the average Election Cycle chart to show the Mid-Term Election Year in the context of the four-year cycle. The average Mid-Term Election Year has a net bull trend of a few weeks from early in the year to springtime and then sideways to down into the fall when the S&P returns to around the level of the year open. There is an average fall to year end advance that looks to be the majority of the gains for the year.

____________

4-3

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Average Returns for Election Cycle Years and Terms

Since 1949

8%

MidTerm Election Years 5%

# Neg Years

7 of 19

8 of 19

1 of 18

3 of 18

3 of 18

Since 1981

16%

4%

15%

4%

44%

# Neg Years

2 of 12

5 of 12

1 of 11

3 of 18

2 of 18

S&P Returns

Post Election Years

Pre Election Years

Election Years

17%

7%

Ave of the 4Year Cycles 40%

The Mid-Term Election Years are tied for the worst average annual return at 4% but have the highest rate of losing years, 8 of 19 since 1949 and 5 of 12 since 1981. That’s about 40% losing years. Not a period of time to be excited about. We definitely want to take a closer look at Mid-Term Election Years to discover if there is any period within a MEY that has a useful bias or not.

____________

4-4

Chapter 4: Mid-Term Election Years

Mid-Term Election Year Average Cycle

What does the average cycle look like?

The chart below shows the average cycle for all MEYs from 1950 and 1982. Both average cycles trend closely together. On average, there has been a short bull trend from the middle of the first quarter, around mid-February, to an early third quarter high followed by a consistent and significant decline into the late third quarter to early fourth quarter. The average trend that may be most interesting to us is the average sharp advance from the fall low into year end.

Like all averages, they don’t tell the whole story by any means, especially the Mid-Term Election Years average.

4-5

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

All Mid-Term Election Years Chart

The next chart includes all MEYs from 1950 to 2022. Would you want to make a trading decision based on just the average of all years as shown above knowing the wide range of dispersion of the individual years? I hope not. But, just eyeballing this chart there is one period that seems to have a positive bias, regardless of where that seasonal trend started. Most years had a net Bull trend from a fall low to December or year end. We’ll look more closely at all the data to see if this is the case or if there is another seasonal period that has a strong bias in a Mid-Term Election Year.

____________

4-6

Chapter 4: Mid-Term Election Years

Mid-Term Election Year Returns by Quarter and Annually EY 1950

President Truman

1st Qtr 5.6%

2nd Qtr 2.3%

3rd Qtr 10%

4th Qtr 5%

Annual 21.8%

1954

Eisenhower

8.5%

8.6%

10.6%

11.5%

45.0%

1958

Eisenhower

5.3%

7.4%

10.8%

10.2%

36.0%

1962

Kennedy

-2.8%

-21.3%

2.7%

12.1%

-12%

1966

Johnson

-3.5%

-5.0%

-9.6%

4.8%

-11.1%

1970

Nixon

-2.7%

-18.9%

16.0%

9.4%

-1.4%

1974

Nixon

-3.7%

-8.5%

-26.2%

8.0%

-31.2%

1978

Carter

-6.2%

7.1%

7.3%

-6.2%

1.1%

1982

Reagan

-8.6%

-2.1%

9.9%

16.8%

12.9%

1986

Reagan

13.1%

5.0%

-7.8%

4.7%

14.9%

1990

Bush

-3.8%

5.3%

-14.5%

7.9%

-7.4%

1994

Clinton

-4.4%

-0.3%

4.1%

-0.7%

-1.5%

1998

Clinton

13.5%

2.9%

-10.3%

20.9%

24.4%

2002

Bush Jr.

-0.1%

-13.7%

-17.6%

7.9%

-24.6%

2006

Bush Jr.

3.7%

-1.9%

5.2%

6.2%

13.6%

2010

Obama

4.9%

-11.9%

10.7%

10.2%

12.8%

2014

Obama

1.3%

4.7%

0.6%

4.4%

13.4%

2018

Trump

-1.2%

2.9%

7.2%

-14.0%

-7.0%

2022

Biden

-5.0%

-16.4%

-5.3%

7.1%

-19.4%

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Annual

0.7% 11 of 19

-2.8% 10 of 19

0.2% 7 of 19

6.6% 3 of 19

4.2%

Average Negative Years

9 of 19

The first three quarters of the Mid-Term Election years have poor average results with the second quarter an almost 3% average loss. Over 50% of the years had losses in the first two quarters with about 40% losses in the third quarter. The first three quarters of a MEY don’t hold any bias we can take advantage of. The each quarter is fairly equal losses and gains. But, the fourth quarter holds promise. Only three MEY fourth quarters have been net losers since 1950 with an average gain of almost 7%. Let’s take another look at the chart with the average Mid-Term Election Years. 4-7

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

The quarterly return data helps to clarify the apparent mess of the chart with all Mid-Term Election Years. When we consider the average gain or loss and number of negative quarters, there is no bias during the first three quarters for us to take advantage of. The fourth quarter is the only seasonal period during a Mid-Term Election Year with a strong positive bias we should be alert too. Most years have a Fall Low to Year End positive bias and MEYs are no different.

____________

4-8

Chapter 4: Mid-Term Election Years

Mid-Term Election Years Since 1950 Sorted by Annual Return From Worst to Best Range

# in Range

MEY

Gain/Loss

1974

-31%

Mid-Term Election Years

2002

-25%

By Annual Return

2022

-19%

1962

-12%

1966

-11%

1990

-7%

2018

-7%

1994

-2%

1970

-10% to -30%

5

-1%

0 to -10%

4

1978

1%

0-10%

1

2010

13%

1982

13%

2014

13%

2006

14%

1986

15%

10%-20%

5

1950

22%

1998

24%

1958

36%

1954

45%

20%-50%

4

Avg

4.2%

9 of 19 Years = Losses

19

____________

4-9

While 9 of the 19 MEYs had double digit gains, 9 years were losses with five of those years with double digit losses.

There is no strong annual bias positive or negative for the MEYs although we’ll find that there is a strong season bias that we may be able to take advantage of.

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Years by Political Party

Mid-Term Election Years by Political Party

MEY

MEY Democrats President +/-

MEY

MEY Republicans President

+/-

1954

Eisenhower

45.0%

Kennedy

21.8% -12.0%

1958

Eisenhower

36.0%

1966

Johnson

-11.1%

1962

Nixon

-1.4%

1978

Carter

1.1%

1966

Nixon

-31.2%

1994

Clinton

-1.5%

1970

Reagan

12.9%

1998

Clinton

24.4%

1974

Reagan

14.9%

1978

Carter

12.8%

1990

Bush

-7.4%

1994

Clinton

13.4%

2002

Bush Jr.

-24.6%

1998

Clinton

-19.4%

2006

Bush Jr.

13.6%

2018

Trump

-7.0%

1950

Truman

1962

MEY Dems Avg Gain

3.3%

MEY Reps Avg Gain

4 of 9 Negative

5.1%

5 of 10 Negative

There is no relevant bias to take advantage of between the Democrat or Republish administrations during MEYs.

4-10

Chapter 4: Mid-Term Election Years

MEY 1st Term

MEY 2nd Term

MEY

President

+/-

MEY

President

+/-

1950

Truman

21.78%

1958

Eisenhower

36.0%

1954

Eisenhower

45.0%

1974

Nixon

-31.2%

1962

Kennedy

-12.0%

1986

Reagan

14.9%

1966

Johnson

-11.1%

1998

Clinton

24.4%

1970

Nixon

-1.4%

2006

Bush Jr.

13.6%

1978

Carter

1.1%

2014

Obama

13.4%

1982

Reagan

12.9%

1990

Bush

-7.4%

1994

Clinton

-1.5%

2002

Bush Jr.

-24.6%

2010

Obama

12.8%

2018

Trump

-7.0%

2022

Biden

-19.4%

nd

MEY 2 Term Avg

11.9%

1 of 6 losses since 1950 No losses since 1982 MEY 2nd Terms Bullish Bias 2 Term Mid-Term Election Years Presidents far outperformed 1st term. nd

0.7% MEY 1st Term Avg 6 of 13 Negative Since 1950 5 of 7 Negative Since 1982 More years negative than positive

4-11

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

MEY 1st Term Democrats

MEY 1st Term Republicans

1950

Truman

D

21.8%

1954

Eisenhower

R

45.0%

1962

Kennedy

D

0.5%

1970

Nixon

R

-1.4%

1966

Johnson

D

-11.1%

1982

Reagan

R

12.9%

1978

Carter

D

1.1%

1990

Bush

R

-7.4%

1994

Clinton

D

-1.5%

2002

Bush Jr.

R

-24.6%

2010

Obama

D

12.8%

Biden

D

-19.4%

2018 Trump R st MEY 1 Term Rep AVG AVG W/O 1954

-7.0% 2.9% -5.5%

2022 st

MEY 1 Term Dem AVG

0.6%

While a slight edge seems to go to the 1st term Republicans, if the 1954, 45% gain is not included, the average gain turns into an average loss. The sample size here is too small to reach any conclusions but it is better to have the data even if it is not relevant than not have it at all. This is another example of why you should not trust or make a trading decision based on any average without first breaking it down to the relevant data. I don’t include the data for 2nd term by party because the sample size for each would be too small to be relevant.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year Charts: Year by Year

Let’s take a look at the chart and comments for each Mid-Term Election year since 1950 to see what reliable information could help us make confident, high probability decisions during a Mid-Term Election Year. Viewing the chart for each year will demonstrate the wide variety of trends throughout the years and why to be wary of simply trusting an average which may not represent a typical year.

The Chart Pages Format Each chart shows the SPX weekly closes for each Mid-Term Election Year (MEY) since 1950. I use weekly closes for the chart because it effectively smooths out some of the volatility and more clearly shows the seasonal trends. The percentage changes for the Year and Seasonal periods use daily closes. Each chart has a horizontal line at the last week ending of the prior year. This week-ending price may not always be the exact year-end price but close enough for our purposes. The heading of the chart shows the year and net change for the MidTerm Election Year (MEY) as well as the net change for the prior year or the Post-Election Year (PtEY). Key comments are on the chart at significant highs and lows. Below the chart are additional comments for each year including for seasonal trends.

The One Relevant MEY Seasonal Trend The quarterly data shown earlier in the chapter clearly show there is not a sufficient seasonal bias for a Year Open or Spring Low to Summer High or Summer High to Fall Low seasonal trend. For the MEY charts, I am only commenting on the Fall Low to Year End seasonal period.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Chart Abbreviations / Terms President: This is the sitting president in office when the year began. The description includes his party and whether it is the 1st or 2nd term. PtEY: Post-Election Year MEY: Mid-Term Election Year PEY: Pre-Election Year EY: Election Year D: Democratic Party R: Republican Party YO: Year Open. The opening price of the year. SL: Spring Low. March to June 19. SH: Summer High. June – September 19. FL: Fall Low. September – December 19. YE: Year End. The last trading day or the last weekly close of the year.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 1950 (PtEY 10%): +22%

President: Truman (D), 1st Term Fall Low (September 1) to Year End: +9.7%. When there is no distinct “fall low”, I take the lowest low of the September to December 19 period. It is often September 1 if a bull trend from the summer continues right through the fall. Comments: Regardless of the volatility and trends prior to fall, most MEYs have a net Bull trend from the fall into the end of the year.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 1954 (PtEY -7%): +48%

President: Eisenhower (R), 1st Term Fall Low (September 1) to Year End: +20% Comments: 1954 and 1958 were the two strongest Mid-Term Election Years. Part of the post-war rally.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 1958 (PtEY -14%): +36%

President: Eisenhower (R), 2nd Term Fall Low (September 1) to Year End: +15% Comments: Another bullish outlier MEY. Neither 1954 or 1958 had a down quarter. A feat that has only been repeated once (2014) through 2022. The next few years will not be so kind to the stock market.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 1962 (PtEY +23%): -12%

President: Kennedy (D), 1st Fall Low (October 23) to Year End: +18%. While the year was net bear into the fall low, the usual Fall Low to Year End had a substantial gain. Comments: All but two MEY Fall Lows were made in September or October. Regardless of how bearish the year has been going into fall, be alert for a probable low and reasonable advance into the Year End.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 1966 (PtEY +9%): -11%

President: Johnson (D), 1st Fall Low (October 7) to Year End: +10%. Another net bearish year going into fall with a partial recovery into the year end. Comments: Unfortunately, there is not an objective strategy to identify when a market is in a position to complete a Fall Low. Beginning in early September, apply the technical analysis you have proven to help identify reversals for a potential low that could complete a Fall Low.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 1970 (PtEY -11%): -1.4%

President: Nixon (R), 1st Term Fall Low (November 18) to Year End: +11.4%. On a weekly closing basis, October and November made a double bottom although November had a slightly lower daily close. Whichever you consider the Fall Low, the trend was up sharply into Year End. Comments: The close of the year was so close to the open of the year, the horizonal lines from each overlapped on the chart. I only show the Year Open above.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 1974 (PtEY -17%): -31%

President: Nixon (R), 2nd Term Fall Low (October 1) to Year End: +10%. Another example of a major Bear trend going into fall when a low is made (usually by late October) followed by a net Bull trend into Year End. Comments: It is very clear from the quarterly statistics earlier as well as the few charts we’ve seen so far, the first half of the year has no bull or bear bias. But there is a definite bull bias from a Fall Low (usually September or October) into the Year End.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 1978 (PtEY +9%): +1%

President: Carter (D), 1st Term Fall Low (November 14) to Year End: +4%. Comments: You will never know in advance how much or how little of a gain, if any, there may be from a Fall Low to Year End. The only thing you do know is for the past 74 years, there has been an overwhelming tendency for at least a modest gain from a Fall Low to the Year End.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 1982 (PtEY -10%): +13%

President: Reagan (R), 1st Term Fall Low (October 1) to Year End: +15%. Note the sharp advance from the typical period for a Fall Low following four weeks oscillating around the Year Open range. Comments: Four weeks of oscillating above and below the Year Open will have investors frustrated and a bit depressed. Nine months into the year and no return on the stock indexes. The breakaway right in the key Fall Low time period was followed by an accelerated advance probably due to investor excitement their portfolios are finally up for the year!

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 1986 (PtEY +26%): +15%

President: Reagan (R), 2nd Term Fall Low (September 29) to Year End: +5.4%. Comments: Almost six months of no net gain and the stock indexes rally from a Fall Low into Year End.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 1990 (PtEY +27%): -7.4%

President: Bush (R), 1st Term Fall Low (October 11) to Year End: +12%. Comments: Another disastrous years going into the fall when the S&P made a bottom in mid-October followed by a sharp rally into year end.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 1994 (PtEY +7%): -2%

President: Clinton (D), 1st Term Fall Low (December 8) to Year End: +3%. Comments: Since 1950, only two fall lows have been made in December and two in November. Most were made in September and October. Even with the new low in December, the S&P closed the year modestly above the Fall Low.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 1998 (PtEY +31%): +24%

President: Clinton (D), 2nd Term Fall Low (September 1) to Year End: +26%. Comments: The stock market was not looking good going into September, the beginning of the Fall period when the S&P rallied for a couple of weeks, made a minor correction into October and then continued to advance to above the September high into the end of the year. In other words, a typical MEY Fall Low to Year End rally.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 2002 (PtEY -13%): -25%

President: Bush (R), 1st Term Fall Low (October 9) to Year End: +13%. Comments: The advance off the October low doesn’t look so great on the chart above because of the extreme decline going into the yearend but it was a substantial 17% into the November extreme and +13% into Year End.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 2006 (PtEY +3%): +14%

President: Bush (R), 2nd Term Fall Low (September 7) to Year End: +10%. Comments: A typical Fall Low to Year End rally.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 2010 (PtEY +24%): +13%

President: Obama (D), 1st Term Fall Low (September 1) to Year End: +16%. Comments: Another volatile MEY for the first six months or so followed by a typical Fall Low to Year End rally.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 2014 (PtEY +30%): +13%

President: Obama (D), 2nd Term Fall Low (October 15) to Year End: +11%. Comments: A sharp decline into a mid-October, Fall Low and recovery to a new high into the Year End.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year 2018 (PtEY +19%): -7%

President: Trump (R), 1st Term Fall Low (October 26) to Year End: -6%. Comments: The lowest daily close in the fall was December 19, the last official day of fall. The S&P made distinct swing lows in October and November. Both the October and the November lows were below the Year Open, both were followed by a brief advance to above the Year Open. I’ve used the October low as the fall low. This is the only Mid-Term Election Year since 1950 with a Fall Low to Year End that is negative.

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Chapter 4: Mid-Term Election Years

Mid-Term Election Year 2022 (PtEY +27%): -19%

President: Biden (D), 1st Term Fall Low (October 12) to Year End: +7%. Comments: 2022 was net bearish from the open into mid-October, nearing the extreme time to complete a Fall Low. The S&P then had a typical Fall Low to Year End advance.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Double News Events Charts and Trade Strategies

What are “news events” and how can we incorporate them into our trade strategies? First, let’s define by what I mean by a “news event”. It is an objective, technical event that would be reported in the financial news to the public. For example, if the stock market declines below or exceeds the Year Opening later in the year, it will be widely reported in the financial news. In some circumstances, if the stock market makes a new high or low for the year, it may be headline financial news. The further into the year a market crosses the Year Opening or makes a new high or low for the year, the more newsworthy the event should be. A stock index that declines to below the Year Open is usually a dramatic news event. Over 60% of Americans own stock. News that is depressing for 60% of Americans is a noteworthy event. Failed expectations, such as stocks always go up, is a pessimistic event. A new high for the year is usually not an important news event in a bull market because it is expected and usually not dramatic. A new high for the year after the market has been at a loss for the year is newsworthy. There may be many significant news events during the year that will affect market trends and optimistic or pessimistic outlooks which not only cannot be predicted, but the reaction to them may be unpredictable depending on other factors in the economy. Financial news related to interest rates, unemployment, deficits etc. are not considered for our purposes. Political, international or social news is not considered. Such events may or may not be considered positive or negative. But when a stock index declines below the Year Open showing a loss for the year, it is always newsworthy. If the S&P has been negative for the year, but advances above the Year Open to be positive, it will be a headline news event. It is not the single event that is usually predictive of the follow through, but what I describe as Double Negative or Double Positive News Events (DNN / DPN) that have more predictable follow through to the second news event.

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Chapter 4: Mid-Term Election Years

The Double News Events Charts and Comments Following are the charts and comments for just those Mid-Term Election Years with Double Positive or Double Negative News Events. A Double Negative News Event (DNNE) is two consecutive negative news events and is usually followed by a continued bear trend for weeks and often into the end of the year. A Double Positive News Event (DPNE) is two consecutive positive news events and is usually followed by a bull trend for weeks and often into the end of the year. These are logical outcomes. It is as if the second consecutive negative event confirms to the trading public the negative trend of the market and liquidation follows, or at best, buyers stop buying. The psychology becomes a negative feedback loop; selling begets selling. It is just the opposite with two consecutive positive events. They confirm to the public the strength or recovery of the market, which brings in buying power to continue the bull trend and, in some cases, to accelerate the trend, often into the year-end.

The Double News Events Charts For the Mid-Term Election Years since 1950, there were six years with Double Negative News Events and six years with Double Positive News Events. The charts that follow include each Mid-Term Election Year with a Double News Event. The percentage in the chart title is the percent change from the second event to the Year End. The Year Close is a completely objective event. There were other positive and negative news events other than the ones noted, but they did not represent two consecutive positive or negative news events.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1950: Double Positive News Event Year (+6%)

The Setup: The S&P had a terrific advance into June and then collapsed to make a weekly close below the Year Open in July. Positive News Event #1: A week later, the S&P closed back above the Year Open. “The S&P swiftly recovered this week to close back into positive territory for the year.” Positive News Event #2: In late September, the S&P closed above the June high for a new high for the year. “Investors rejoiced today as the S&P closed to a new high for the year after the summer crash.” Bull Trend Into Year End: Following the second Positive News Event, the S&P made a net Bull trend into year-end for about a 6% gain from the second positive news event.

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Chapter 4: Mid-Term Election Years

1966: Double Negative News Event Year (-7%)

The Setup: The S&P was net bullish for a few weeks from the Year Open and then declined to below the Year Open for a new low for the year and a loss on the year. #1 Negative News Event: Traded below the Year Open to put the S&P at a loss for the year up to that time. #2 Negative News Event: After a rally to near the Year Open, the S&P began a sharp decline and closed below the March low in late April to a new low for the year. “Investors got more bad news today as the S&P made a new low for the year after brief hopes for a recovery rally.” The Outcome: The S&P continued to decline another 14% into early October. The S&P made a typical Fall Low-Year End rally but still closed below the second NNE 7%.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1970: Double Negative News Event Year (+11%)

The Setup: A matter of days after the Year Open, the S&P traded below the Year Open to start the year off at a loss. #1 Negative News Event: January 12, declined below the Year Open. “The S&P made a new low today for a bad start to the New Year.” #2 Negative News Event: April 24, new low. “The S&P declined to a new low for the year today compounding investor losses.” The Outcome: The S&P made a declined 13% following the 2nd NNE into late May, but then began a relentless recovery to close the year 11% above the 2nd Negative News Event. In almost every Double Negative News Event Year, the S&P followed the 2nd Negative News Event with a double digit decline. But the very consistent Fall Low to Year End rally often kicked in to close the year above the 2nd NNE.

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Chapter 4: Mid-Term Election Years

1974: Double Negative News Event Year (-27%)

The Setup: After starting the year in negative territory, the S&P briefly rallied back above the Year Open. #1 Negative: In late March, the S&P closed back below the Year Open. “The S&P is back in negative territory today after a brief run into positive territory.” #2 Negative News Event: April 11, the S&P closed below what was the low for the year up to that time. “The S&P continued its losing streak today with a new low for the year.” The Outcome: Following the new low in April, the S&P continued an almost relentless decline of 32% into an October Fall Low. The S&P had a typical MEY Fall Low to Year End rally of almost 8% and closed down 27% from the second NNE.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1978: Double Positive News Event Year (-4%)

The Setup: The year began very negative with a decline into March but a recovery into June which turned investors very positive. #1 Positive News Event: In early July, the S&P closed back below the Year Open (NNE) and the next week closed back above the Year Open, a PNE. #2 Positive News Event: July 28 closed above the June high which was the high of the year up to that time. “Investors rejoiced as the S&P closed at a new high for the year.” The Outcome: The S&P continued to advance another 7% for a few weeks into September which turned out to be the high for the year. By year end, the S&P was down 4% from the 2nd PNE in July. We see this often with a Mid-Term Election Year Double Positive News Events where there is only a modest follow through to the 2nd News Event and the S&P often closes the year lower.

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Chapter 4: Mid-Term Election Years

1990: Double Positive News Event Year (-11%)

The Setup: The S&P was net bearish from the year open and it wasn’t until May that it closed back above the year open. #1 Positive News Event: May 18, close above the year open for the first time that year. “Investors rejoiced today as the S&P closed into positive territory for the first time this year.” #2 Positive News Event: The week ending July 13, the S&P closed above the June swing high for a new high for the year. “The S&P continued to a new high for the year bringing hope to investors.” The Outcome: The S&P immediately reversed lower for a steep and consistent 18% decline into an October low. The MEY made a typical Fall Low to Year End rally which recovered some of the losses but with a close 10% below the 2nd PNE. The is the only MEY with a Double Positive News Event setup that did not have at least a few weeks follow through to the upside following the 2nd PNE. 4-41

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1994: Double Negative News Event Year (-1% / +2%)

The Setup: The S&P had a brief rally early in Jan. but then turned about to close below the Year Open, then back above the Year Open. #1 and #2 Negative News Events: In one week, the S&P turned around and closed back below the Year Open and below the March swing low which was the low of the year. A double negative whammy for investors. The Outcome: The S&P continued to decline almost 4% into a May/June double bottom. The S&P closed down 1% from the 2nd NNE. The Next Setup: The S&P rallied back above the year open and oscillated above and below that level for weeks. #1 and #2 Negative News Events: The S&P closed below the Year Open again in early November and a couple weeks later closed below the October swing low. 4-42

Chapter 4: Mid-Term Election Years The Outcome: Only a two week and 1% follow through to an early December low followed by an advance into the Year End. This is the only MEY that had two Double Negative News Events in the year and neither had much follow through.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2002: Double Negative News Event Year (-19%)

The Setup: The S&P took a dive early in the year and briefly traded back above the Year Open in late March. #1 Negative Event: After just two weeks above the Year Open, the S&P closed below the Year Open again. “Investors hopes were smashed again after briefly trading in positive territory, the S&P traded down to a loss for the year.” #2 Negative Event: The bear trend continued and in late April, the S&P closed below the February low for a new low for the year. “Investors hopes were dashed again as the S&P plunged to another new low for the year.” The Outcome: The S&P continued net Bear into the early October low for a 25% decline from the second negative news event. The S&P then had the typical Fall Low-Year End rally to recover about 10%, closing down 19% from the second negative news event.

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Chapter 4: Mid-Term Election Years

2006: Double Positive News Event Year (+6%)

The Setup: After a rally early in the year, the S&P declined to below the Year Open in July. #1 Positive News Event: After just three weeks below the Year Open, the S&P closed back above the Year Open to be back in positive territory for the year. #2 Positive News Event: In late September, the S&P advanced strongly from the July low to above the May high for a new high for the year. “Investors celebrated today as the S&P continued its bull trend to a new high for the year.” The Outcome: Following the #2 Positive News Event, the S&P advanced 6% into the Year End, closing near the high for the year. Another Fall Low – Year End rally.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2010: Double Positive News Event Year (+3%)

The Setup: The S&P oscillated above and below the Year Open for several months without making two consecutive positive or negative events. #1 Positive News Event: In mid-September, the S&P closed back above the Year Open. #2 Positive News Event: The S&P continued a sharp advance and in early November closed above the April high which was the high for the year up to that time for a new high for the year. “Investors rejoiced today as the S&P continued its advance to a new high for the year.” The Outcome: After a brief correction, the S&P continued to close the year at the high of the year for another 2.5% net gain from the #2 PNE. Note the first event was made in mid-September and the S&P was net bullish into year end, typical of the MEY Fall Low to Year End rally.

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Chapter 4: Mid-Term Election Years

2018: Double Positive News Event Year (-13%)

The Setup: After a sharp rally for a few weeks from the Year Open, the S&P declined and bounced above and below the Year Open a few times without making two consecutive positive or negative news events. #1 Positive News Event: In May, the S&P closed back above the Year Open. This time, it continued a bull trend to above the January high of the year. #2 Positive News Event: In late August, the S&P closed above the January high to a new high for the year. “Investors rejoiced again today as the S&P made a new high for the year.” The Outcome: The euphoria was short-lived as the S&P gained just 2% over the next few weeks for a September high followed by a relentless bear trend to well below the Year Open and a Year End close near the low of the year. Not only was there little follow through following the second PNE, but this was one of the few MEYs that did not have a Fall Low-Year End rally.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

MEYs: Double News Events: 1950-2022

The Ex Date is the date of the max gain or loss from the 2nd News Event. The Time to Ex is the time from the 2nd NE to the extreme gain or loss. The Ex % is the price change from the 2nd NE to the extreme change. The YE is the change from the 2nd NE to the Year End.

MEY

2nd PNE

Ex Date

Ex %

YE %

MEY

2nd NNE

Ex Date

Ex %

YE %

1950

9/28

11/24

5%

5%

1966

5/9

10/6

-14%

-7%

1978

7/28

9/8

7%

-4%

1970

4/24

5/22

-13%

11%

1990

7/13

7/13

0%

-11%

1974

4/11

10/4

-32%

27%

2006

9/26

12/14

7%

6%

1994*

3/25

5/13

-4%

-1%

2010

11/5

12/31

3%

3%

1994*

11/22

12/8

-1%

2%

2018

8/24

9/20

2%

-13%

2002

4/26

10/4

-26%

-19%

+4%

-2%

Average

-15%

+2%

Average

Double Positive News Event Years (DPNE) The follow-through from the second positive news events were fairly modest on average just 4%. In three of the six DPNE years, the S&P had a negative return following the second PNE, with two of the years in the double-digit loss column. The three years that closed above the second PNE, the close either did not gain on the extreme earlier in the year and in 2006, was 1% less than the extreme. We saw earlier that Mid-Term Election Years were the weakest of the four years in the Election Cycle on average. This is reflected in the relatively poor follow-through to the Double Positive News Events years. There has not been enough follow through from the second PNE in the MEYs for it to be an event to take advantage of.

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Chapter 4: Mid-Term Election Years

Double Negative News Event Years (DNNE) Double Negative News Event Years are another story altogether. They reflect the generally bearish MEYs. All but one second NNE were made in the first half of the year. The average extreme loss following the second NNE was a significant 15% and the average decline from the second NNE to the extreme loss was 97 days. In most years, there was a significant rebound from the extreme to the year-end which reflects the typical Fall Low-Year End seasonal bull trend for MEYs. The practical bias of the Mid-Term Election Years DNNEs is a frequent double digit follow through to the 2nd NNE, often into a fall low, followed by a reasonable recovery into the end of the year. See details of the Fall Low to Year End seasonal bullish bias study on the following pages.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Year Seasonal Trends

The chart below is the average Mid-Term Election Year trend. While the average trend from early February to mid-April is Bullish, over 50% of the first quarters were actually negative (11 of 19). This is another case where the average is very misleading. The second and third quarter average trends are also misleading. While the second quarter had an average loss of 2.8%, 9 of the 19 years or almost 50% were positive second quarters. There is no bias positive or negative to take advantage of. The other three years within the election cycle have a fairly consistent Summer High to Fall Low which includes much of the third quarter. Not the Mid-Term Election Years. The average of all years since 1950 has been essentially flat with 7 of the 19 years negative and 12 positive during this second to third quarter period. Again, no useful bias to include in a trading plan.

The fourth quarter is another story. There has been a strong positive bias with an average gain of almost 7% and only 3 of the 19 years with a 4-50

Chapter 4: Mid-Term Election Years negative fourth quarter. As we’ll see very soon, when we consider a Fall Low which begins the later part of the third quarter into Year End, the bullish bias is even more pronounced.

Seasonal Dates The dates of the seasonal lows and highs are fairly evenly spread over broad periods. It is impossible to identify a specific date for entry or exit for a “seasonal” trade. An average date is as useless as an average price. The practical application of a seasonal trend is to be aware of the range of dates with a consistent history of making a low or high followed by an advance or decline into a relatively narrow range of dates. There are no Year Open or Spring Low to Summer High or Summer High to Fall Low seasonal studies for Mid-Term Election Years as we’ve already seen that these periods do not have a consistent or reliable bias as do other Election Cycle Years. While fall officially begins with the fall equinox (September 20 or 21), the end of summer and beginning of fall is traditionally considered the day after Labor Day, the first Monday in September. Fall officially continues to the winter solstice (December 20 or 21). I include the fall period from September 1st through December 19. September 1st is often shown as the “Fall Low” date. That is usually because a bull trend from prior to September 1 continued right through the fall without a distinct Fall Low and September 1 was the lowest low of the fall period.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Years: Fall Low to Year End FL: Fall Low: Sept. to Dec. 19 YE: Year End, Last Trading Day MEY FL FL to YE 1950

9/1

9.7%

1954

9/1

20.0%

1958

9/1

15.0%

1962

10/23

18.0%

1966

10/7

9.7%

1970

11/18

11.4%

1974

10/1

10.0%

1978

11/14

3.9%

1982

9/1

18.9%

1986

9/29

5.4%

1990

10/11

11.7%

1994

10/7

1.0%

1998

9/1

25.6%

2002

10/9

13.3%

2006

9/7

9.6%

2010

9/1

16.4%

2014

10/15

10.5%

2018

10/26

-5.7%

2022

10/12 Average

7.3% 11.1%

Fall Low to Year End Seasonal Trend Most Fall Lows were made in Sept. or October (17 of 19) with just two in Nov. Since 1950, only one year did not have a gain from the Fall Low to Year End (2018). A Fall Low to Year End is the only consistent seasonal tendency for MidTerm Election Years. Several years show the “Fall Low” as Sept. 1. These years had a bull trend before Sept. 1 that carried right through Sept. with no discernable low or correction into year end. Sept. 1 was the lowest daily close of the Fall period. Beginning in early Sept., if the market is making a corrective decline or is in a Bear trend, begin to look for technical setups that put the market in a position to complete a low. Note from the charts of each MEY earlier, several MEYs were in strong Bear trends going into the Fall periods but made a low often followed by a healthy advance into the Year End. If the S&P is making a strong bull trend going into Sept., keep in mind the high frequency of a MEY positive trend from a fall low to year end and a bullish fourth quarter to position long for a trend into year end.

____________

4-52

Chapter 4: Mid-Term Election Years

Mid-Term Election Years: Fall Monthly Lows to Year End The Fall Low to Year End study above shows this seasonal period to have a very bullish bias with an average gain of just over 11% for the two to three months period and only one small loss for the period. The Fall Low is not an objective period. Most have been made in September or October. The table below shows the change from the lows of the months of September, October and November into the Year End. It also shows if the low of each month was exceeded before the Year End.

MEY: Fall Monthly Lows to Year End YE C > : Year End Close Above (% Change) O: October, N:November, D:December : * = Exceeded by 3 days or less Sept L YE C > Oct L YE C > Nov L YE C > MEY

Exc?

Sept L?

Exc?

Oct L?

Exc?

Nov L?

1950

N

10%

Y*

5%

Y

5%

1954

N

21%

N

14%

Y*

6%

1958

N

15%

N

10%

N

8%

1962

Y (N)

5%

Y (N)

4%

N

8%

1966

Y (O)

6%

N

10%

N

1%

1970

N

14%

Y (N)*

11%

N

11%

1974

Y

8%

N

10%

Y (D)

1%

1978

Y (O)

-6%

Y (N)*

3%

N

4%

1982

N

19%

N

16%

N

6%

1986

N

5%

N

4%

N

2%

1990

Y (O)

10%

N

12%

N

8%

1994

Y (O)

1%

Y (N)

2%

Y (D)

2%

1998

N

26%

N

28%

N

11%

2002

Y (O)

8%

N

13%

Y (D)*

1%

2006

N

10%

N

7%

N

4%

2010

N

16%

N

11%

N

7%

2014

Y

5%

N

11%

Y

2%

2018

Y

-13%

Y (N)*

-5%

Y (D)

-5%

2022

Y (O)*

7%

N

7%

N

3%

9% 7/19 Y

17/19+

9% 6/19 Y

____________ 4-53

18/19+

4% 6/19 Y

18/19 +

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends Of the 19 Mid-Term Election Years since 1950, only 2018 closed the year below the lows of all three months. Only two years closed the year below the September low. This reflects the strong positive bias from a Fall Low to Year End. What does this data represent? At the end of September, you are able to identify the low close of September. Since 1950, only two years have closed the year below the low close of September. The average gain from the lowest close in September to Year End has been 9%. The range in gains has been from 1% to 26%. While the September low to year end is a strong positive bias, you don’t necessarily want to go long the first of October expecting a bull trend into year end. In almost one-third of the past MEYs, the S&P exceeded the September low before continuing the bull trend into year end. The first of November, identify the low close of October. A MEY has only closed the year below the low of October one time since 1950, although six years did trade below the October low before the year end. You can use this information to apply your technical analysis to identify if the S&P is in a position to make a low in September or October for a potential bull trend into year end.

____________

4-54

Chapter 4: Mid-Term Election Years

Mid-Term Election Years: Santa Claus Rally The “Santa Claus Rally” is the potential advance from Thanksgiving to Christmas. It is a logical period for a stock market advance during the busiest retail buying period of the year. But, it is not a consistent and reliable rally for every year within the election cycle. Because it is anticipated every year, we want to have the data for each of the four years in an election cycle to see if there actually is a bias for a Santa Claus rally we can take advantage of.

Mid-Term Election Year Santa Claus Rally TG: Thanksgiving Eve - C: Christmas Eve – YE: Year End MEY

TG-C%

TG-YE %

C-YE

1950

-0.5%

1.0%

1.5%

1954

3.5%

5.3%

1.8%

1958

4.2%

6.4%

2.2%

1962

3.0%

3.8%

0.8%

1966

1.6%

0.1%

-1.5%

1970

6.5%

8.3%

1.8%

1974

-4.3%

-1.8%

2.5%

1978

0.8%

0.6%

-0.2%

1982

4.3%

5.0%

0.7%

1986

-0.8%

-2.7%

-1.9%

1990

4.4%

4.5%

0.1%

1994

2.2%

2.1%

-0.1%

1998

2.9%

3.7%

0.8%

2002

-5.0%

-6.0%

-1.0%

2006

0.3%

0.7%

0.4%

2010

4.9%

5.0%

0.1%

2014

0.4%

-0.7%

-1.1%

2018

-10.7%

-4.8%

5.9%

2022

-4.5%

-4.6%

-0.1%

Avg All Years

0.7%

1.4%

0.7%

Years Positive

13/19

13/19

12/19

AVG + Years

3.0%

3.6%

1.7%

AVG - Years

-4.3%

-3.4%

-0.8%

4-55

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends The average gain from Thanksgiving to Christmas is less than 1%. Onethird of the years are negative. There is not average or typical seasonal bias for a “Santa Claus Rally.” However, with an average gain of 3% for the positive years, if your technical analysis suggests a bull trend should continue for that period, the bias for the positive years could give a boost to the trend into Christmas and Year End.

____________

4-56

Chapter 4: Mid-Term Election Years

Mid-Term Election Year Key Factors Table

A summary table of the MEY events shown on the yearly charts for each Mid-Term Election Year since 1950. 1950 +22%

President: Truman (D), 1st Term Fall Low to Year End (September 1): +9.7% Double Positive News Events Year

1954

President: Eisenhower (R), 1st Term

+48%

Fall Low (September 1) to Year End: +20%

1958

President: Eisenhower (R), 2nd Term

+36%

Fall Low (September 1) to Year End: +15%

1962

President: Kennedy (D), 1st

-12%

Fall Low (October 23) to Year End: +18%.

1966 -11%

1970 -1.4%

1974 -31% 1978 +1%

President: Johnson (D), 1st Fall Low (October 7) to Year End: +10%. Double Negative News Events Year President: Nixon (R), 1st Fall Low (November 18) to Year End: +11.4% Double Negative News Events Year President: Nixon (R), 2nd Term Fall Low (October 1) to Year End: +10% Double Negative News Events Year President: Carter (D), 1st Term Fall Low (November 14) to Year End: +4% Double Positive News Events Year

1982 +13%

President: Reagan (R), 1st Term Fall Low (October 1) to Year End: +15%.

4-57

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1986

President: Reagan (R), 2nd Term

+15%

Fall Low (September 29) to Year End: +5.4%.

1990 -7.4%

1994 -2%

President: Bush (R), 1st Term Fall Low (October 11) to Year End: +12% Double Positive News Events Year President: Clinton (D), 1st Term Fall Low (December 8) to Year End: +3% Double Negative News Events Year

1998

President: Clinton (D), 2nd Term

+24%

Fall Low (September 1) to Year End: +26%.

2002 -25%

2006 +14% 2010 +13%

President: Bush (R), 1st Term Fall Low (October 9) to Year End: +13% Double Negative News Events Year President: Bush (R), 2nd Term Fall Low (September 7) to Year End: +10% Double Positive News Events Year President: Obama (D), 1st Term Fall Low (September 1) to Year End: +16% Double Positive News Events Year

2014 +13% 2018 -7%

President: Obama (D), 2nd Term Fall Low (October 15) to Year End: +11%. President: Trump (R), 1st Term Fall Low (October 26) to Year End: -6% Double Positive News Events Year

2022 -19%

President: Biden (D), 1st Term Fall Low (October 12) to Year End: +7%.

____________ 4-58

Chapter 4: Mid-Term Election Years

Mid-Term Election Years Summary: Key Factors and Trade Strategies

Mid-Term Election Years are tied for the worst average annual return since 1981 at just 4% but have the highest rate of losing years, 8 of 19 since 1949 and 5 of 12 since 1981. That’s about 40% losing years. Not a period of time to be excited about.

Average Returns for Election Cycle Years and Terms

Since 1949

8%

MidTerm Election Years 5%

# Neg Years

7 of 19

8 of 19

1 of 18

3 of 18

3 of 18

Since 1981

16%

4%

15%

4%

44%

# Neg Years

2 of 12

5 of 12

1 of 11

3 of 18

2 of 18

S&P Returns

Post Election Years

Pre Election Years

Election Years

17%

7%

Ave of the 4Year Cycles 40%

Mid-Term Election Year Returns by Quarter and Annually

Average Negative Years

1st Qtr 0.7% 11 of 19

2nd Qtr -2.8% 10 of 19

3rd Qtr 0.2% 7 of 19

4th Qtr 6.6% 3 of 19

Annual 4.2% 9 of 19

The average returns by quarter simply and clearly show why there is no bias to take advantage of in the first three quarters of the year. The first three quarters have low to negative average returns. More importantly, the positive and negative quarters are split about half and half. No directional bias. The fourth quarter is a different story. It has a fairly strong average return of 6.5% and since 1982, only two negative quarters. The fourth quarter definitely has a positive bias which is a large part of the Fall Low to Year End seasonal positive bias. See the Fall Low to Year End Season Trend below for trade strategies. 4-59

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Years By Political Party MEY Democrat AVG: 3.3%

MEY Republican Ave: 5.1%

4 of 9 Negative

5 of 10 Negative

There is no relevant bias between Democrat or Republican administrations during Mid-Term Election Years. See page 4-10 for details.

Mid-Term Election Year Average Returns by 1st or 2nd Term Presidents MEYs 1st Term Presidents

MEY 2nd Term President

Average 1st Term: 1.7%

Average 2nd Term: 11.9%

6 of 13 Years Negative Since 1950

1 of 6 Negative Since 1950

While it is a fairly small sample size of 2nd term presidents since 1950, they have had a much stronger performance on average than 1st term presidents. Plus, since 1950, 2nd term presidents have had only one losing year while 1st term presidents have had almost 50% losses, or 6 of 13 losing years. See page 4-11 for chart and details.

Mid-Term Election Years by 1st Term Political Party MEYs 1st Term Democrats Average 0.6%

MEYs 1st Term Republicans Average 2.9% W/O 1954: Average -5.5%

While a slight edge seems to go to the 1st term Republicans, if the 1954, 45% gain is not included, the average gain turns into an average loss. The sample size here is too small to reach any conclusions but it is better to have the data even if it is not relevant than not have it at all. This is another example of why you should not trust or make a trading decision based on any average without first breaking it down to the relevant data. See page 412 for details.

4-60

Chapter 4: Mid-Term Election Years

Mid-Term Election Years: Fall Low to Year End 18 of 19 Positive

Average 11.1%

A Fall Low to Year End rally is the only consistent seasonal trend in the Mid-Term Election Years with an average gain of over 11%. Since 1950, only one year has not had a positive gain in this period. Beginning in September, look for technical setups that put the market in a position to complete a low that could be followed by a bull trend into the end of the year. See page 4-53 for details.

Mid-Term Election Years: Fall Monthly Lows to Year End Sept. Low To YE

Oct. Low To YE

Nov. Low To YE

Average

9%

9%

4%

Years Positive Years Month Low Exceeded

17/19 Positive

18/19 Positive

18/19 Positive

6/19 Y

6/19 Y

6/19 Y

Most Fall Lows have been made in September or October. Beginning in early September, use technical analysis to identify if the S&P is in a position to complete a low, whether a correction within a bull trend, or the end of a bear trend from Summer. Or, if the S&P has been making a strong bull trend into September, consider the Fall Low to Year End bias may continue to drive it bullish into year end. The S&P has an average advance from either the September or October lows of 9% and more than two-thirds of the time, does not exceed either the September or October lows. See page 4-54 for details.

____________

4-61

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Mid-Term Election Years: Santa Claus Rally TG-C%

TG-YE %

C-YE

Avg All Years

0.7%

1.4%

0.7%

Avg W/O 2018

1.3%

1.7%

N/A

Years Positive

13/19

13/19

12/19

AVG Positive Years

3.0%

3.6%

1.7%

AVG Negative Years

-4.3%

-3.4%

-0.8%

No Santa Claus Rally Bias The average return from Thanksgiving Eve to Christmas Eve is less than 1%. If we leave out the 2018 outlier, it is 1.4%. Six of the 19 years or about 1/3 were negative for the period. Not much of a positive bias to consider for a trade strategy. See page 4-56 for details.

Double Positive and Negative News Events Mid-Term Election Years since 1950 have had six Double Positive and six Double Negative News Events. The follow-through to the Double Positive News Events was a modest 4% average. Of the six DPNE years, three closed the year below the second Positive News Event. There is no consistent bias to a Double Positive News Event in a MEY to take advantage of. A Double Negative News Event in a MEY is another story. There is an average decline of 15% following the second Negative News Event, typically into a Fall Low. This is a fairly significant follow through you should look to take advantage of. See page 4-34 for details.

____________

4-62

Chapter 4: Mid-Term Election Years

Trader’s Mid-Term Election Year Calendar

Mid-Term Election Years have been the weakest of the four years in the election cycle, on average, since 1950, particularly the first half of the year. While other years within the four-year Election Cycle typically have two or three seasonal trends within the year, the Mid-Term Election Years have only one seasonal bias to take advantage of, a fall low to year-end rally.

Democrat Vs Republican Administrations There is no relevant bias between Democrat or Republican administrations in past Mid-Term Election Years. See page 4-10 for details.

1st Term Verses 2nd Term President MEY second term presidents have had a much better record than first term presidents particularly for the Fall Low to Year End rally. Be particularly alert in a MEY with a 2nd Term President for bull setups in the second half of the year. See page 4-11 for details.

Spring and Double Negative News Events (DNNE) A MEY second Negative News Event is usually made in the Spring (late March to early May) and on average, has had a 15% decline following the second NNE. Be alert beginning in March for a possible DNNE followed by a sharp decline. See page 4-48 for details.

September (The Fall Low to Year End Rally) Most Fall Lows have been made in September or October. There has only been one MEY since 1950 that was not bullish from a Fall Low into Year End (2018). Beginning in September, apply your technical analysis to help identify when the S&P is in a position for a potential low, which is usually followed by a net bull trend into the Year End. See page 4-53 for details.

4-63

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

A Santa Claus Rally From the trading day before Thanksgiving to the trading day before Christmas. There is no historical bullish or bearish bias for a SC Rally in a MEY. Better to know this than to be ill informed by some who always claim a positive bias for this period when it simply isn’t true. See page 4-56 for details.

Mid-Term Election Year Trade Strategies The only seasonal statistical bias for MEYs is the Fall Low to Year End rally. Hopefully, your go-long strategy during this period will make up for what has typically been a fairly dismal year up to the beginning of Fall for stock indexes in a Mid-Term Election Year. __________ Keep Up To Date with the current position of the Stock Market and Election Cycle at www.DTElectionCycle.com. __________

4-64

Chapter 5:

Pre-Election Years

Table of Contents What You’ll Learn About Pre-Election Years............................................. 5-2 The Pre-Election Year (PEY) In The Election Cycle .................................. 5-2 Pre-Election Year Average Cycle .............................................................. 5-4 All Pre-Election Years Chart ..................................................................... 5-5 Pre-Election Years and the Political Parties .............................................. 5-9 The Pre-Election Year Charts: Year by Year ............................................ 5-13 The Double News Event Chart and Comments ....................................... 5-33 Pre-Election Year Seasonal Trends ......................................................... 5-34 Pre-Election Year Key Factors Table ....................................................... 5-44 Pre-Election Years Key Factors and Trade Strategies .............................. 5-47 The Pre-Election Year Santa Claus Rally................................................. 5-51 Trader’s Pre-Election Year Calendar ....................................................... 5-52 Pre-Election Year Opportunities ............................................................. 5-54

5-1

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

What You’ll Learn About Pre-Election Years

➢ The overwhelming bias of a Pre-Election Year and why it is likely to continue. ➢ The Election Cycle sweet spot. ➢ The seasonal trend that is unique to Pre-Election Years with no losses since 1949. ➢ The seasonal period that has not had a consistent trend to avoid. ➢ The year end seasonal trend that has been 90%+ positive since 1949. ➢ At the end of the chapter, a Pre-Election Year calendar to prepare you in advance for the high probability biases to incorporate into your trade plan each Pre-Election Year.

The Pre-Election Year (PEY) In The Election Cycle

Of the four years in the Election Cycle, the Pre-Election Year (PEY) is often the most bullish for the stock market. It makes sense. As the election approaches, the incumbent president wants to enact as much legislation as possible to bolster the economy to win the most votes the following year. The black line of the 4-Year Election Cycle Average includes all Election Cycles since 1949. The grey line is the average of the Election Cycles since 1981. Both have substantially the same form throughout the Election Cycle with the more recent cycles since 1981 at higher returns.

____________

5-2

Chapter 5: Pre-Election Years

Average Returns for Election Cycle Years and Terms S&P Returns

Post Election Years

Since 1949

8%

MidTerm Election Years 5%

# Neg Years

7 of 19

8 of 19

Pre Election Years

Election Years

17%

7%

Ave of the 4Year Cycles 40%

1 of 18

3 of 18

3 of 18

Since 1981

16%

4%

15%

4%

44%

# Neg Years

2 of 12

5 of 12

1 of 11

3 of 18

2 of 18

On average, a bull trend began around early October of the prior year followed by a consistent bull trend into late June – early July. This is what Yale Hirsh of the Stock Trader’s Almanac called “the sweet spot” of the election cycle. Typically, the period with consistently the highest return. Also note from the table above, there has only been one Pre-Election Year since 1949 that ended the year with a loss (2015).

____________

5-3

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year Average Cycle

What does an average Pre-Election Year look like?

There is little difference between the average of all years since 1949 or the average from 1981. The period since 1981 underperformed the broader period by a percent or two throughout the average cycle. The average PEY trend is a strong advance from the Year Open into July, followed by net sideways to down into October and a rally into the end of the year. On average, the first half of the year should have the best profit potential. The third quarter may be a time to avoid or at least, not to have high expectations. Like many of the Election Cycle Years, there may be a Fall Low to Year End seasonal trend we can exploit.

Like all averages, they don’t tell us the whole story. Let’s look at the data that makes up these averages to see if the average trend is also a typical trend or not.

5-4

Chapter 5: Pre-Election Years

All Pre-Election Years Chart

The chart below includes all PEYs from 1951 to 2019. More than any of the other Elections Years, the PEYs show more trend consistency. Only a couple years even dip into negative territory during the year. There is a definite positive bias into mid-year. Most years appear net bullish the last two to three months of the year. We’ll break down the data for the Pre-Election Years but just eyeballing the data it looks like the average of all years shown on the prior page may well represent the typical trends during a PEY.

____________

5-5

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year Returns by Quarter and Annually PEY

President

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Annual

1951

Truman

5.4%

-2.3%

11.0%

2.2%

17%

1955

Eisenhower

2.2%

12.0%

6.6%

4.1%

27%

1959

Eisenhower

0.5%

5.6%

-2.7%

5.3%

9%

1963

Kennedy

5.6%

4.2%

3.3%

4.6%

19%

1967

Johnson

12.3%

0.4%

6.7%

-0.2%

20%

1971

Nixon

8.8%

-1.6%

-0.4%

3.9%

11%

1975

Nixon/Ford

21.6%

14.2%

11.9%

7.5%

32%

1979

Carter

5.7%

1.3%

6.2%

-1.3%

12%

1983

Reagan

8.8%

9.5%

-0.9%

-0.7%

17%

1987

Reagan

20.4%

4.2%

5.9%

-23.2%

2%

1991

Bush

13.6%

-1.1%

4.5%

7.5%

26%

1995

Clinton

9.0%

8.8%

7.3%

5.4%

34%

1999

Clinton

4.7%

6.7%

-6.6%

14.6%

20%

2003

Bush

-3.6%

14.9%

2.2%

11.6%

26%

2007

Bush

0.2%

5.8%

1.6%

-3.8%

4%

2011

Obama

5.4%

-0.4%

-14.3%

11.2%

0%

2015

Obama

0.4%

-0.2%

-7.0%

6.5%

-1%

2019

Trump

13.1%

3.8%

1.2%

8.5%

29%

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Annual

Average Since 1951

7.5%

4.8%

2.0%

3.5%

16.8%

# Negative

1/18

5/18

6/18

5/18

1/18

Average Since 1983

7.2%

5.2%

-0.6%

3.8%

15.7%

# Negative

1/10

3/10

4/10

3/10

1/18

The PEY table statistics clearly show the 1st quarter is by far the strongest with the highest average return (7.5%) and only one first quarter since 1951 that showed a loss. The third quarter is by far the weakest, on average. While the third quarter has an average loss of just -0.6% since 1983, only 4 of the 10 years had a loss for the third quarter. But the large loss in 2011 overwhelmed the small gains for the period.

5-6

Chapter 5: Pre-Election Years Another example of why to be wary of averages and always dig down into the data to understand the bigger picture.

The quarterly return data and PEY average trend chart above with comments clearly suggests to be aware of the consistent bullish seasonal trend from the beginning of the year at least into July. This is the later period of the Election Cycle “sweet spot”, the most consistently bullish period of the Election Cycle. It looks like the third quarter has no seasonal bias but the fourth quarter may be worth looking into considering how many years have a consistent positive bias from a Fall Low to Year End.

____________

5-7

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Years Since 1951 Sorted by Annual Return From Worst to Best PEY

Return

Range

# in Range

2015

-1%

Negative

1

Pre-Election Years by Annual Return

2011

0%

1987

2%

2007

4%

1959

9%

4

While the average trend of all election years since 1952 is a healthy 17%, the annual results are fairly evenly distributed from the worst year to the best year.

1971

11%

1979

12%

1951

17%

1983

17%

1963

19%

1999

20%

1967

20%

1991

26%

2003

26%

1955

26%

2019

29%

1975

32%

1995

34%

Average PEY

17%

0-10%

When results are evenly distributed between the extremes, it clearly shows to beware that the average is not necessarily representative of a typical year. 10-20%

5

20%30%

6

30%+

2

As we’ll see when we break down the data year by year, there are many years that have closed the year positive but were widely volatile during the year. We will also find there are a few strong seasonal tendencies that are very consistent we can take advantage of most years.

Since 1951, 1 of 18 Years a Loss

5-8

Chapter 5: Pre-Election Years

Pre-Election Years and the Political Parties

PEYs Democrat Presidents

PEYs Republican Presidents

1963

Kennedy

19%

1955

Eisenhower

27%

1967

Johnson

20%

1971

Nixon

11%

1979

Carter

12%

1983

Reagan

17%

1995

Clinton

34%

1991

Bush, Sr

26%

2011

Obama

0%

2003

Bush, Jr.

26%

1951

Truman

17%

2019

Trump

29%

1999

Clinton

20%

1959

Eisenhower

9%

2015

Obama

-1%

1975

Nixon/Ford

32%

1987

Reagan

2%

2007

Bush, Jr.

4%

Democrat Ave Since 1951

15%

Rep AVG Since 1951

5-9

18%

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends There is little difference in the average annual returns between Republican and Democrat administrations. The fourth quarter average definitely favors the Democrats who make a comeback when at the same time, the Republicans give up some of the earlier gains in the fourth quarter, on average.

PEYs Democrat 1st Term

PEYs Republican 1st Term

1963

Kennedy

19%

1955

Eisenhower

27%

1967

Johnson

20%

1971

Nixon

11%

1979

Carter

12%

1983

Reagan

17%

1995

Clinton

34%

1991

Bush, Sr

26%

2011

Obama

0%

2003

Bush, Jr.

26%

2019

Trump

29%

Democrat Avg Since 1951 : 17.0%

Republican Avg Since 1951 : 23.0%

5-10

Chapter 5: Pre-Election Years While the Republicans have performed slightly better on average, the trend structure of 1st Term Republicans and Democrats is almost identical. No Pre-Election Year 1st Term President has had a loss for the year although Obama squeaked by at break even in 2011. Other than that year, the 1st Term PEY gains have mostly been well into the double digits. __________

5-11

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

PEY Democrat 2nd Term

PEY Republican 2nd Term

1951

Truman

16%

1959

Eisenhower

11%

1999

Clinton

20%

1975

Nixon/Ford

35%

2015

Obama

-1%

1987

Reagan

2%

2007

Bush, Jr.

4%

Average: 12%

Average: 13%

Second Term Republicans have had a setback the second half of the year while the Democrats appear to pick it up sharply in the fourth quarter to make up for a lackluster year up to then. By the year end, it’s a three-way tie! This is a very small sample size and not really meaningful, but it’s always better to have the data on hand than not! __________

5-12

Chapter 5: Pre-Election Years

The Pre-Election Year Charts: Year by Year

Let’s take a look at the chart and comments for each Pre-Election Year since 1951 to see what reliable information could help us make confident, high probability decisions during a Pre-Election Year. Viewing the chart for each year will demonstrate the wide variety of trends throughout the years and why to be wary of simply trusting an average which may not represent a typical year.

The Chart Pages Format Each chart is the SPX weekly closes for each Pre-Election Year (PEY) since 1951. I use weekly closes for the charts because it effectively smooths out some of the volatility and more clearly shows the seasonal trends. The percentage changes for the Year and Seasonal periods use daily closes. Each chart has a horizontal line at the last week ending of the prior year. This week-ending price may not always be the exact year-end price but close enough for our purposes. The heading of the chart shows the year and net change for the PreElection Year (PEY) as well as the net change for the prior year (MEY: MidTerm Election Year). Key comments are on the chart at significant highs and lows. Below the chart are additional comments for each year including the seasonal trends.

Pre-Election Year Seasonal Trends Each of the years of the four-year election cycle have seasonal biases. But, the seasonal biases are not the same for each of the years. PEYs are unique with a strong seasonal bias from the year open into the summer. On the yearly charts below, I’ve noted this trend for each year as well as the high for the year which is often made during the summer high or not far from it. The Fall Low to Year End trend is also noted for each year.

____________

5-13

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Chart Abbreviations / Terms President: The sitting president beginning the pre-election year. PtEY: Post Election Year MEY: Mid-Term Election Year PEY: Pre-Election Year EY: Election Year D: Democratic Party R: Republican Party YO: Year Open. SH: Summer High. June – September 19. FL: Fall Low. September – December 19 YE: Year End. The last trading day or the last weekly close of the year.

____________

5-14

Chapter 5: Pre-Election Years

Pre-Election Year 1951 (MEY 20%): +17%

President: Truman (D): 1st Term Year Open to Summer High (September 13): +16%. The first significant high was made in early May, but new highs were made into September with the high for the year just a few points above the Summer High. High of the Year: October 5: Just a few ticks above the Summer High. The average return from the Summer High to Year End is a negative -1.1%. The third quarter is the weakest quarter on average in a PEY although the average Fall Low to Year End usually gains back most of any loss from the Summer High into the Fall Low. Summer High to Fall Low (September-November): -6% Fall Low (November 21) to Year End: +7%. Correction into Thanksgiving followed by a net advance into year end. As we will see, there is very frequently at least a minor correction into the September – November period, most frequently October – November, followed by a net Bull trend into year end. Comments: It is unusual for the spring low to be exceeded (4 of 18 years). Even when the Spring Low is exceeded in a PEY, the S&P usually recovers to a new high for the year into the Summer High (June-September 19).

____________ 5-15

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 1955 (MEY 45%) +26%

President: Eisenhower (R): 1st Term Year Open to Summer High (September 16): +25%. While a slow start the first quarter, a strong advance into the Summer High. High for the Year: September 26. Summer High to Fall Low (September-October): -10%. Fall Low (October 11) to Year End: +12%: October corrective low followed by net bull trend into year end. Since 1951, a PEY has only closed the year below the low of October once. Comments: The majority of the gains for the year were made by mid-July, typical for a PEY. A typical PEY Fall Low to Year End rally.

____________

5-16

Chapter 5: Pre-Election Years

Pre-Election Year 1959 (MEY 38%): +9%

President: Eisenhower (R); 2nd Term Year Open to Summer High (August 3): +10%. After a few weeks oscillating around the Year Open, another consistent bull trend into the early August high. High of the Year: August 3. The majority of the gains for most PEYs are made by the Summer High. Summer High to Fall Low (August-September): -9%. Fall Low (September 22) to Year End: +9%. Major corrective low to within a day of the fall equinox. Net bull into the end of the year. While the S&P took a deep dive from the early August high, it rebounded from a Fall Low to Year End. Comments: This year included two key characteristics of a PEY. The majority of the gains for the year were made by summer and a net bull trend from a Fall Low (September – November) to Year End which recovered most of the decline into the fall low.

5-17

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 1963 (MEY -12%): +19%

President: Kennedy (D); 1st Term Year Open to Summer High (September 19): +16%. A strong bullish year right into the Year End. Unusual fourth quarter bull trend. High of the Year: Dec. 31. Summer High-Fall Low (September-October): -5%: Fall Low (November 22, Thanksgiving) to Year End: +8%: Bull trend into the Year End (also called the Santa Claus rally; a Thanksgiving to Christmas bull trend). The Year End close of a PEY since 1951 has always closed higher than the lowest close of November. Comments: A classic bull trend with higher highs and higher lows throughout the year. The spring low was not exceeded.

____________

5-18

Chapter 5: Pre-Election Years

Pre-Election Year 1967 (MEY -13%): +20%

President: Johnson (D); 1st Term. Year Open to Summer High (September 19): +20%. Another strong first half of the year with the majority of the gains for the year made in the first two quarters. High of the Year: October 6. The high of the year was just a few points above the Summer High, very typical of a PEY. Summer High to Fall Low (September-November): -5%. Fall Low (November 8) to Year End: +6%: Early November low followed by net bull trend into year end. A Santa Claus Rally. In every PEY since 1951, the year has closed above the low close of November Comments: The majority of the gains for the year were made by the end of July. A correction was complete by early November followed by a consistent bull trend into the end of the year.

5-19

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 1971 (MEY 0.1%): +11%

President: Nixon (R); 1st Term Year Open to Summer High (September 8): +10%. Sept. 8 was the highest close in the summer period from June – Sept. 19, although it was well below the April high. High of the Year (April 28): April is early for a PEY high of the year. The summer period was still well above the Year Open. Summer High to Fall Low (September-November): -11%. Fall Low (November 23, Thanksgiving) to Year End: +13%. Declined below the Year Open briefly followed by a sharp advance into year end. November low just before Thanksgiving. A Santa Claus Rally. Since 1951, a PEY has always closed the year higher than the low of November. Comments: While the March low was exceeded and soon followed by a brutal net bear trend to a new low for the year in November, the Fall Low to Year End Rally kicked in to close the year near the April high.

____________

5-20

Chapter 5: Pre-Election Years

Pre-Election Year 1975 (MEY -30%): +32%

President: Ford (R); 2nd. While Nixon resigned in 1974 and Vice-President Ford became President, 1975 was the second term of the Nixon/Ford administration. Year Open to the Summer High (July 14): +39%. High for the Year: July 14. The majority of gains in most PEYs are made by the end of the second quarter – early third quarter. Summer High to Fall Low (July-September): -14%. Fall Low (September 16) to Year End: +11%. An 11 week correction from the July high followed by a net advance into Year End. Comments: A typical PEY with a strong bull trend into a July high followed by a correction into a September low and net bull trend into the Year End. While the majority of the gains are usually made by the Summer High in a PEY, there is usually a strong recovery from the Fall Low into Year End.

____________

5-21

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 1979 (MEY 1%): 12%

President: Carter (D), 1st Term Year Open to Summer High (September 19): +13%. The Summer High was just a few points short of the high for the year. High for the Year (October 5): As usual for a PEY, the majority of the gains were made by the end of summer. Summer High to Fall Low (September-November): -8%. Fall Low (November 7) to Year End: +8%: Sharp correction into the late October low followed by a net Bull trend into Year End. Comments: An unusual PEY with a strong third quarter. While there was a sharp decline into the October low, there was a strong gain from the Fall Low to Year End. A PEY has only closed the year below the low close of October once since 1951.

____________

5-22

Chapter 5: Pre-Election Years

Pre-Election Year 1983 (MEY 1%): 17%

President: Reagan (R); 1st Term Year Open to the Summer High (June 22): +13%. The majority of gains for a PEY are usually made by the Summer High. High for the Year: June 22. The Summer High was also the high for the year. Summer High to Fall Low (June-November): -5%. Fall Low (November 11) to Year End: +2%: A mild recovery from the Fall Low. Comments: All of the gains came in the first half of the year with a June high for the year and triple top with October and December. No progress the second half of the year but once again, the year ended above the November low.

____________

5-23

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 1987 (MEY 15%): +2%

President: Reagan (R); 2nd Term Year Open to the Summer High (August 24): +37%. All of the gains for the year were made by the Summer High. High of the Year: August 24. The high for a PEY is often made by the end of Summer (September 19). Summer High-Fall Low (August-October): -33%. Fall Low (October 19) to Year End: +10%. The panic liquidation continued into early December which is technically still the Fall. The weekly closing data does not reflect the spike down to October 19 and sharp reversal. On a daily closing basis, the Year End closed above the October and November lows. In only one PEY year since 1951 has the year closed below the daily closing low of October. In no PEY since 1951, has the year closed below the daily closing low of November. Comments: 1987 was a newsworthy year that actually closed above the Year Open. 1987 demonstrated the two consistent seasonal trends for a PEY. A strong rally into the Summer with the Summer High at or near the high of the year and a recovery rally from the Fall low into Year End.

____________ 5-24

Chapter 5: Pre-Election Years

Pre-Election Year 1991 (MEY -7%): +26%

President: H.W. Bush (R); 1st Term Year Open to Summer High (August 28): +20%. While the Summer High was not the high for the year, the majority of gains were made by the Summer High. High of the Year (December 31): The high of the year was not far above the Summer High. Summer High-Fall Low (August-November): -5%. Fall Low (November 25, Thanksgiving) to Year End (+11%): Correction into late November followed by a sharp advance into year end. A Santa Claus Rally. The S&P has closed above the Nov. closing low in every PEY since 1951. Comments: Another PEY with the open at or near the low of the year and the close at or near the high of the year but not far above the Summer High. The majority of the gains for the year were again complete by summer.

___________

5-25

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 1995 (MEY -1%): +34%

President: Clinton (D); 1st Term Year Open to Summer High (September 19): +27%. High of the Year: December 13. Unusually late for a PEY high for the year but an unusually consistent bull trend from open to close of the year. Summer High to Fall Low (September-October): -1%. Fall Low (October 26) to Year End: +7%: A minor correction into lateOctober followed by a continued bull trend into year end. The S&P has closed the year higher than the closing low of October in every year since 1951 except one. Comments: An unusually bullish year with no significant corrections, just a relentless drive higher throughout the year. One of the few PEYs with a strong second half of the year.

____________

5-26

Chapter 5: Pre-Election Years

Pre-Election Year 1999 (MEY 27%): +20%

President: Clinton (D), 2nd Term Year Open to Summer High (July 16): +15%. The majority of the gains for the year were complete by the Summer High. High of the Year: Dec. 31. While a new high was made going into the end of the year, it was less than 5% above the Summer High. Summer High to Fall Low (July-October): -12%. Fall Low (October 15) to Year End: +15%: In most PEYs, if there is a correction into a Fall Low, the typical Fall Low to Year End usually recovers most of the decline. In 1999, the Fall Low to Year End was a sharp rally ending the year at a new high. Comments: While a volatile year, most of the characteristics of a PE. Open near the low of the year. Most gains for the year made by the Summer High. A fall low and net bull trend into year end. In every PEY year but one since 1951, the S&P advanced from the September – November low, often sharply. May be a good time to be alert in any PEY regardless of the conditions, trend and volatility up to that period.

____________ 5-27

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 2003 (MEY -23%): +26%

President: G. W. Bush (R); 1st Term Year Open to the Summer High (September 18): +18%. While the Year started off in the red, a strong rally into the Summer High was made. In every PEY since 1951, the Summer High (highest daily close of June 1 – September 19) was well above the Year Open. A decline early in the year to below the Year Open is an opportunity to identify a reversal and bull trend into the summer. High of the Year: December 31. A strong fourth quarter to a significant new high, not typical of a PEY. Summer High to Fall Low (September-September): -4%. Not a summer high to fall low seasonal trend as we usually think of one, but September included the highest daily close of the summer period and the lowest daily close of the fall period. Fall Low (September 30) to Year End: +12%. A minor correction into late Sept. followed by a consistent bull trend into Year End. Comments: 2003 started off negative but once again, the Year Open to Summer High seasonal bull trend kicked in for a strong advance into summer and beyond.

____________ 5-28

Chapter 5: Pre-Election Years

Pre-Election Year 2007 (MEY 14%): +4%

President: G. W. Bush (R); 2nd Term Year Open to Summer High (July 13): +10%. The majority of gains for the year were made by the Summer High. High of the Year: October 9. Only a few points above the Summer High. Summer High to Fall Low (July-November): -9%. Fall Low (November 26, Thanksgiving) to Year End: +4%: A correction from the October high into Thanksgiving followed by modest net bull trend into the year end. A “Santa Claus Rally”. Comments: The highs for the year were effectively a double top in July and October. Another year with little if any net gain following the Summer High. 2007 is the only PEY since 1951 that closed the year below the lowest daily close of October.

____________

5-29

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 2011 (MEY 13%): 0%

President: Obama (D); 1st Term Year Open to the Summer High (July 6): +7%. July 6 was the highest close of the summer period and not far below the April high. All of the gains for the Year were made by the Summer High. High of the Year: April 29. Earlier than typical for a PEY but the Summer High was not far below. Summer High to Fall Low (July-October): -18%. Fall Low (October 3) to Year End: +14%: The Fall Low was followed by a volatile net bull trend into Year End which closed the year flat. There has only been one PEY that closed the year below the low close of October and no PEY has closed the year below the November closing low. Comments: Things were looking grim following the sharp decline into August to below the March and Year Opening lows to a significant new low for the year. But the consistent PEY September-November low followed by an advance into yearend brought the S&P up to break even by the end of the year.

5-30

Chapter 5: Pre-Election Years

Pre-Election Year 2015 (MEY -6%): -1%

President: Obama (D); 2nd Term Year Open to Summer High (July 20): +3%. The highest daily close for the June 1–September 19 summer period. A modest but typical first half of the year net bull trend. High of the Year: May 21. May 21 was the highest daily close for the year. The week ending July 17 was the highest weekly close for the year. There were just a few points difference between the two of them. Summer High to Fall Low (July-September): -12%. Fall Low (September 28) to Year End: +9%. Very sharp decline for a new low of the year into September followed by a sharp rally into November then net bear into Year End. The week ending data shows the weekly closing low early in September but the daily closing low was later in September. Comments: The only PEY since 1950 that closed below the open of the year, but only by 1%. There was little net advance after May. Importantly, what seemed like the early stages of a bear trend following the July decline to a new low in September was followed by a net advance into Year End for just a modest loss for the year.

____________ 5-31

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year 2019 (MEY -6%): +29%

President: Trump (R), 1st Term Year Open to Summer High (August 1): +18%. High of the Year: December 31. An exceptional year with a high substantially above the summer high. Summer High to Fall Low (August-October): -2%. Fall Low (September 28) to Year End: +12%. A minor corrective low followed by a net bull trend into the end of the year. Comments: 2019 included two of the most consistent seasonal biases of a PEY. A net bull trend from the Year Open into the Summer High, and a consistent bull trend from the Fall Low into Year End. You can never know in advance how significant these seasonal advances will be, only that you want to take advantage of these high probability PEY seasonal trends.

____________

5-32

Chapter 5: Pre-Election Years

The Double News Event Chart and Comments

While several Pre-Election Years were quite volatile crossing above and below the Year Open, 2007 is the only Pre-Election Year that had a Double News Event with two consecutive positive or negative news events.

The Setup: A decline from the mid-February high to below the Year Opening for a low in March. Positive News Event #1: In late March, the S&P closed back above the Year Open. “After a brief correction, the S&P is back in positive territory for the year and analysts predict there should be no letup in the bull trend.” (Financial entertainment analysts always have positive predictions). Positive News Event #2: In early April, the S&P closed above the February high for a new high for the year. “Investors got more good news today as the S&P made a new high for the year with no end in sight for the bull trend.” New High: The S&P advanced 7% into the July high before suffering a steep decline almost back to the Year Open followed by a sharp rally to a new high into October and sharp decline to close the year slightly above the 2nd PNE.

5-33

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year Seasonal Trends

The chart below is the average Pre-Election Year trend. Pre-Election Years have several consistent seasonal tendencies to be aware of and take advantage of. The Pre-Election Year is unique in that, on average, it has a consistent bull trend from the Year Open into the Summer High. The other years in the Election Cycle tend to be sideways to down into a Spring Low. The Summer High to Fall Low, on average, is more sideways than down. The Fall Low-Year End is a consistent seasonal trend with a unique history you will soon learn. We never make a trading decision based just on an average trend. Let’s break down the seasonal trends for a more detail how this information may be useful.

5-34

Chapter 5: Pre-Election Years

Seasonal Dates The dates of the seasonal lows and highs are fairly evenly spread over fairly broad periods. It is impossible to identify a specific date for entry or exit for a “seasonal” trade. An average date is as useless as an average price. The practical application of a seasonal trend is to be aware of the range of dates with a consistent history of making a low or high followed by an advance or decline into a relatively narrow range of dates. The first seasonal study below is from the Year Open into a Summer High. While summer officially begins with the summer solstice (June 20 or 21), the first day of summer is traditionally considered June 1, just after Memorial Day (late May) and the end of summer with the fall equinox (September 20 or 21). While fall officially begins with the fall equinox (September 20 or 21), the end of summer and beginning of fall is traditionally considered the day after Labor Day, the first Monday in September. Fall officially continues to the winter solstice (December 20 or 21).

____________

5-35

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Years: Year Open to the Summer High and To Year End Pre-Election Years do not have a consistent correction into a spring low like some of the other years in the Election Cycle. Instead, the average trend is net bullish from the Year Open into a Summer High. This period is part of the Election Cycle Sweet Spot, the most consistently bullish period in the Election Cycle. It also is reflected in the Pre-Election Year quarterly data where the first half of the year is typically much more bullish than the second half of the year. The Summer High is the highest daily close during the summer period, June to September 19 (day prior to the Fall Equinox). There is only one Summer High in June, the rest are fairly evenly spread from July to September 19. Besides the change from the Year Open to the Summer High, I’ve included the Year Open to July 1, August 1 and September 1 percentage changes. July 1, August 1 and September 1 are objective dates. After examining the data in the table, you’ll see how useful this information can be.

____________

5-36

Chapter 5: Pre-Election Years

Year Open to the Summer High and Summer High to Year End YO: Year Open - SH: Summer High - YE: Year End PEY

YO- 7/1

YO-8/1

YO-9/1

SH

YO-SH

SH-YE

1951

3.4%

10.3%

14.2%

9/13

16.2%

0.4%

1955

14.4%

19.2%

20.6%

9/16

25.3%

0.9%

1959

6.9%

10.0%

6.7%

8/3

10.0%

-1.3%

1963

9.2%

9.5%

15.2%

9/19

16.0%

2.5%

1967

13.2%

18.8%

16.7%

9/19

19.8%

0.3%

1971

8.2%

4.1%

7.5%

9/8

9.9%

0.8%

1975

38.3%

28.3%

24.6%

7/14

38.8%

-4.6%

1979

0.0%

8.4%

11.8%

9/19

12.7%

-4.0%

1983

19.9'%

15.2%

16.8%

6/22

21.6%

-3.6%

1987

25.4%

31.1%

33.5%

8/24

36.6%

-25.9%

1991

14.5%

17.2%

18.8%

8/28

20.1%

5.2%

1995

19.1%

21.8%

22.8%

9/19

27.2%

5.4%

1999

12.4%

8.1%

8.3%

7/16

15.4%

3.6%

2003

11.7%

11.4%

16.2%

9/18

18.2%

6.7%

2007

7.1%

3.4%

5.0%

7/13

9.5%

-5.4%

2011

6.5%

2.3%

-4.2%

7/6

6.5%

-6.1%

2015

1.0%

1.9%

-7.0%

7/20

3.4%

-4.0%

2019

18.3%

17.8%

15.9%

8/1

17.8%

9.4%

PEY

YO- 7/1

YO-8/1

YO-9/1

-

YO-SH

SH-YE

AVG

12.3%

13.3%

13.5%

-

18.1%

-1.1%

Years Neg

0 of 18

0 of 18

2 of 18

-

0 of 18

8 of 18

There were no losses in a PEY from the Year Open to either July 1 or August 1. The average gain from the Year Open to August 1 (13.3%) was just 1% more than the average gain from the Year Open to July 1 (12.3%). On average, not much to be gained after July 1. 5-37

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends Summer High to Year End average of all years was a negative -1.1%. Average SH-YE without the outlier loss of 1987 was just +0.4%. Fourteen of the 18 PEYs had a difference of 1% or less from the SH-YE. Eight years were net losses, ten years a gain of less than 1%. There is typically not much to gain from a summer into the end of the year. There was only one summer high in June. Most were in July through September. Several summer highs were September 19 because that is the last day of summer and the market for those years was a strong bull trend that continued beyond a typical summer high. While the Summer High to Year End may be a challenging time in the stock market, the Fall Low to Year End can be a very productive time to take advantage of.

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5-38

Chapter 5: Pre-Election Years

Pre-Election Years: Summer High to Fall Low PEY

SH Date

FL Date

SH-FL%

1951

9/13

11/21

-5.9%

1955

9/16

10/11

-9.5%

1959

8/3

9/22

-9.2%

1963

9/19

11/22

-4.9%

1967

9/19

11/8

-5.3%

1971

9/8

11/23

-11.0%

1975

7/14

9/16

-13.8%

1979

9/19

11/7

-7.8%

1983

6/22

11/8

-5.4%

1987

8/24

10/19

-32.6%

1991

8/28

11/29

-5.4%

1995

9/19

10/26

-1.3%

1999

7/16

10/15

-12.1%

2003

9/18

9/30

-4.2%

2007

7/13

11/26

-9.4%

2011

7/6

10/3

-17.9%

2015

7/20

9/28

-11.6%

2019

8/1

10/2

-2.2%

Avg since 1951

-9.4%

____________

5-39

Summer High to Fall Low Trend Trying to position for a short trade from a PEY Summer High to Fall Low could be risky given some of the “Summer Highs” were just the last day of summer (Sept. 19) in a consistent Bull trend. The average trend does suggest this period is typically not the best period for trade opportunities. Traders should be better off applying technical analysis to help identify when the market is in a position to complete a Fall Low for a bull trend into Year End.

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year Fall Low to Year End The Pre-Election Year quarterly data shows, on average, the fourth quarter often rebounds with decent gains after the third quarter doldrums. Let’s look at the data and see how we can take advantage of this tendency. The Fall Low is the lowest daily close from September to the end of November. The Fall Lows are fairly evenly spread over this period. I’ve also included the percentage change from September 1, October 1 and November 1 to Year End since these Fall dates are objective.

Pre-Election Year Fall Low to Year End PEY

FL

FL-YE

9/1 to YE

10/1 to YE

11/1 to YE

1951

11/21

6.3%

2.2%

1.3%

3.0%

1955

10/11

11.5%

4.8%

7.1%

7.6%

1959

9/22

8.7%

1.7%

5.3%

4.4%

1963

11/22

7.8%

3.2%

3.9%

1.6%

1967

11/6

5.5%

3.0%

0.2%

4.1%

1971

11/22

12.4%

3.0%

3.2%

10.0%

1975

9/16

9.9%

6.2%

9.5%

3.1%

1979

11/1

6.6%

0.5%

-2.1%

5.2%

1983

11/8

1.9%

0.4%

-0.5%

0.7%

1987

10/19

10.0%

-23.6%

-24.5%

-3.4%

1991

11/25

11.1%

6.4%

7.2%

6.6%

1995

10/26

6.8%

9.2%

5.9%

5.4%

1999

10/15

17.8%

10.4%

14.5%

8.5%

2003

9/30

11.6%

8.8%

9.2%

5.0%

2007

11/26

4.4%

-1.4%

-5.1%

-2.7%

2011

10/3

14.4%

4.4%

14.4%

3.2%

2015

9/28

8.6%

6.8%

6.2%

-2.9%

2019

10/2

11.9%

11.2%

9.9%

5.3%

9.3%

3.2%

3.6%

3.6%

0 of 18

2 of 18

4 of 18

3 of 18

Average Negative for the period

The PEY change from the Fall Low to Year End averaged a healthy +9.3%. A nice advance for 2-3 months or so. More importantly, there were 5-40

Chapter 5: Pre-Election Years no losses for the period. The only drawback is the “Fall Low” is spread from mid-September into late November, a broad period. The table also shows the percentage change from September 1, October 1 and November 1 (or the first trading day of the respective months) into year end. The average advance from these dates is 3.2%, 3.6% and 3.6%. In only two years did the S&P close the year below the September 1 close. This does not mean the S&P didn’t decline below the respective first trading day of the months, because it often did. Only that by Year End, the S&P closed above the open of the respective month for each period. This study shows the persistence of a net bull trend from a Fall Low to Year End from different perspectives. Beginning in mid-September is a time to be alert for the potential for the S&P to make a low and reversal for a probable net bull trend into Year End. We’ll explore more how to make practical use of the Fall Low to Year End information in the summary section near the end of the chapter.

____________

5-41

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

PEY Year End Close Above or Below the Lowest Monthly Close? PEY 1951

FL 11/21

FL-YE 6.3%

YE > Sept. L? Y

YE > Oct. L? Y

YE > Nov. L? Y

1955

10/11

11.5%

Y

Y

Y

1959

9/22

8.7%

y

Y

Y

1963

11/22

7.8%

y

Y

Y

1967

11/6

5.5%

Y

Y

Y

1971

11/22

12.4%

Y

Y

Y

1975

9/16

9.9%

Y

Y

Y

1979

11/1

6.6%

Y

Y

Y

1983

11/8

1.9%

Y

Y

Y

1987

10/19

10.0%

N

Y

Y

1991

11/25

11.1%

Y

Y

Y

1995

10/26

6.8%

Y

Y

Y

1999

10/15

17.8%

Y

Y

Y

2003

9/30

11.6%

Y

Y

Y

2007

11/26

4.4%

N

N

Y

2011

10/3

14.4%

Y

Y

Y

2015

9/28

8.6%

Y

Y

Y

2019

10/2

11.9%

Y

Y

Y

Average

9.3%

2 of 18

1 of 18

0 of 18

This is another study that shows the strong bias for a Fall Low into the Year End. Since 1951, only two years have closed the year below the September low. Only one year closed below the low close made in October and every year closed above the lowest close made in November. This does not mean the S&P did not trade below the lowest close of September by the Year End, but it only closed below the lowest close twice since 1951. This study once again shows that beginning in mid-September, be alert to the technical position of the market if it reaches a position to complete a low that is often followed by an advance lasting several weeks which could be in a position to complete the Fall Low.

____________ 5-42

Chapter 5: Pre-Election Years

Pre-Election Year Santa Claus Rally T: Thanksgiving – C: Christmas – YE: Year End Year

T-C

T-YE

C-YE

1951

5.4%

6.7%

1.3%

1955

0.7%

0.0%

-0.7%

1959

3.9%

4.9%

1.0%

1963

7.2%

7.9%

0.7%

1967

3.7%

4.1%

0.4%

1971

12.3%

13.8%

1.5%

1975

-0.4%

-1.0%

-0.6%

1979

6.0%

5.8%

-0.2%

1983

-1.8%

-0.8%

1.0%

1987

3.7%

1.2%

-2.5%

1991

6.9%

10.9%

4.0%

1995

2.5%

2.9%

0.4%

1999

4.5%

5.0%

0.5%

2003

4.4%

6.0%

1.6%

2007

5.6%

3.6%

-2.0%

2011

8.9%

8.3%

-0.6%

2015

-1.3%

-2.1%

-0.8%

2019

2.2%

2.5%

0.3%

Average

4.1%

4.4%

0.3%

15 of 18 years were positive from Thanksgiving to Christmas 12 of 18 years gained less than 1% from Christmas Eve to Year End.

Pre-Election Years and a Santa Claus Rally A “Santa Claus Rally” is a rally from the trading day prior to Thanksgiving to the trading day prior to Christmas. Some years have been biased for an advance for this period, others are not. The average PEY gain from Thanksgiving eve to Christmas eve (T-C) was 4.1%, or 1% a week. Only three years closed lower on Christmas eve than Thanksgiving eve with the greatest loss for the period just -1.8%. This is definitely a bullish tendency that can be exploited in a PEY. The average gain from Thanksgiving eve to Year End is just slightly higher at 4.4%. More importantly, from Christmas eve to Year End, 12 of the 18 years (67%) had gains of less than 1% or negative. On average, the additional gain holding to Year End was just 0.3%, not much to be gained for the extra week. We’ll explore more how to make practical use of this information in the summary section near the end of the chapter.

5-43

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year Key Factors Table

A summary table of the Pre-Election Year events shown on the yearly charts for each Pre-Election Year since 1951.

Pre-Election Years Key Factors

1951 17%

President: Truman (D), 2nd Term Year Open to Summer High (September 13): +12% Summer High to Fall Low (September-November): -5.9% Fall Low (November 21) to Year End: +6.3% Santa Claus Rally: +5%`

1955 26%

President: Eisenhower (R), 1st Term Year Open to Summer High (September 16): +25.3% Summer High to Fall Low (September-October): -9.5% Fall Low (Oct. 11) to Year End: +11.5% Santa Claus Rally: +1%

1959 9%

President: Eisenhower (R), 2nd Term Year Open to Summer High (August 3): +10% Summer High to Fall Low (August-September): -9.2% Fall Low (September 22) to Year End: +8.7% Santa Claus Rally: +4%

1963 19%

President: Kennedy (D): 1st Term Year Open to Summer High (September 19): +16% Summer High to Fall Low (September-October): -4.9% Fall Low (November 22) – Year End: +8% Santa Claus Rally: +7%

1967 20%

President: Johnson (D), 1st Term Year Open to Summer High (September 19): +20% Summer High to Fall Low (September-November): -5.3% Fall Low (November 8) to Year End: +6% Santa Claus Rally: +4%

1971 11%

President: Nixon (R), 1st Term Year Open to Summer High (September 8): +10% Summer High to Fall Low (September-November): -11% Fall Low (November 23) to Year End: +12% Santa Claus Rally: 12%

5-44

Chapter 5: Pre-Election Years

1975 32%

President: Ford (R), 2nd Term Year Open to Summer High (July 14): +39% Summer High to Fall Low (July-September): -14% Fall Low (September 16) to Year End: +11% Santa Claus Rally: -1%

1979 12%

President: Carter (D), 1st Term Year Open to Summer High (September 19): +13% Summer High to Fall Low (September-November): -8% Fall Low (November 7) to Year End: +8% Santa Claus Rally: +6%

1983 17%

President: Reagan (R), 1st Term Year Open to Summer High (June 22): +13% Summer High to Fall Low (June-November): -5.4% Fall Low (November 11) to Year End: +2% Santa Claus Rally: -2%

1987 2%

President: Reagan (R), 2nd Term Year Open to Summer High (August 24): +37% Summer High to Fall Low (August-October): -33% Fall Low (October 19) to Year End: +10% Santa Claus Rally: +4%

1991 26%

President: H.W. Bush (R), 1st Term Year Open to Summer High (August 28): +20% Summer High to Fall Low (August-November): -5.4% Fall Low (November 25) – Year End: +11% Santa Claus Rally: +7%

1995 34%

President: Clinton (D), 1st Term Year Open to Summer High (September 19): +27% Summer High to Fall Low (September-October): -1.3% Fall Low (October 26) to Year End: +7% Santa Claus Rally: + 3%

1999 20%

President: Clinton (D), 2nd Term Year Open to Summer High (July 16): +15% Summer High to Fall Low (July-October): -12% Fall Low (October 15) to Year End: +15% Santa Claus Rally: +5%

5-45

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2003 26%

President: G. W. Bush (R), 1st Term Year Open to Summer High (September 18): +18% Summer High to Fall Low (September-September): -4% Fall Low (September 30) to Year End: +12% Santa Claus Rally: +4%

2007 4%

President: G. W. Bush (R), 2nd Term Year Open to Summer High (July 13): +10% Summer High to Fall Low (July-November): -9.4% Fall Low (November 26) to Year End: +4% Santa Claus Rally: +6% Double Positive News Event: April, 7%

2011 0%

President: Obama (D), 1st Term Year Open to Summer High (July 6): +7% Summer High to Fall Low (July-October): -18% Fall Low (October 3) to Year End: +14% Santa Claus Rally: +9%

2015 -1%

President: Obama (D), 2nd Term Year Open to Summer High (July 20): +3% Summer High to Fall Low (July-September): -12% Fall Low (September 28) to Year End: +9% Santa Claus Rally: -1%

2019 29%

President: Trump (R), 1st Term Year Open to Summer High (August 1): +18% Summer High to Fall Low (August to October): -2% Fall Low (September 28) to Year End: +12% Santa Claus Rally: +2%

____________

5-46

Chapter 5: Pre-Election Years

Pre-Election Years Key Factors and Trade Strategies

The Pre-Election Years have been the strongest of the four years in the election cycle on average since 1951. Since 1981, they are essentially tied with the Post-Election Years average.

Average Returns for Election Cycle Years and Terms S&P Returns

Post Election Years

Since 1949

8%

MidTerm Election Years 5%

Pre Election Years

Election Years

17%

7%

Ave of the 4Year Cycles 40%

# Neg Years

7 of 19

8 of 19

1 of 18

3 of 18

3 of 18

Since 1981

16%

4%

15%

4%

44%

# Neg Years

2 of 12

5 of 12

1 of 11

3 of 18

2 of 18

The outstanding statistic is there has only been one Pre-Election Year loss since 1951 (2015). That annual loss was only 1%. Pre-Election Years are definitely years to be prepared to take advantage of a bull market, particularly into a summer high. See page 5-3 for details.

____________

5-47

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year Returns by Quarter and Annually PEYs Average Since 1951 # Negative Average Since 1983 # Negative

1st Qtr 7.5% 1 of 18 7.2% 1 of 10

2nd Qtr 4.8% 5 of 18 5.2% 3 of 10

3rd Qtr 2.0% 6 of 18 -0.6% 4 of 10

4th Qtr 3.5% 5 of 18 3.8% 3 of 10

Annual 16.8% 1 of 18 15.7% 1 of 18

The first half of a Pre-Election Year is typically the strongest part of the year and is part of the Election Cycle sweet spot from the fall of the prior year (mid-term) to the summer of the Pre-Election Year. Since 1951, there has only been one 1st quarter with a loss. The third quarter on average has far underperformed the others both by average percentage gain and by the number of losing quarters. The third quarter of a Pre-Election Year may be a good time to plan an extended family vacation or take that long fishing trip you’ve planned for years. See page 5-6 for details.

Pre-Election Years and the Political Party PEYs Democrat Presidents

PEYs Republican Presidents

Average Since 1951: 15%

Average Since 1951: 18%

There is little difference in the PEYs average annual returns whether a Democrat or Republican president. Second term Democrats have performed much better than second term Republicans but when we parse the data by first and second terms, the sample size for each party becomes too small for the averages to be relevant. Only interesting for cocktail chatter and barroom bets when your mark doesn’t consider the small sample size and outsized effect of an outlier year! See page 5-9 for details.

5-48

Chapter 5: Pre-Election Years

PEYs Year Open (YO) to the Summer High (SH) and to Year End (YE) PEY

YO- 7/1

YO-8/1

YO-9/1

YO-SH

SH-YE

Average

12.3%

13.3%

13.5%

18.1%

-1.1%

Years Neg

0 of 18

0 of 18

2 of 18

0 of 18

8 of 18

The first half of a Pre-Election Year is, on average, the strongest and most consistent seasonal period in the Election Cycle. It is the later part of the Election Cycle Sweet Spot. The period from the Summer High to Year End has been a net loss, on average, since 1951. The high of a Pre-Election Year is often made before the end of summer. There were no losses from the Year Open to either July 1 or August 1. On average, the close of a Pre-Election Year is 1.1% below the summer high. On average, the gains for the year are complete by late summer. This doesn’t mean you should take the rest of the year off as PEYs on average have consistent fall to year end rallies. But you might want to plan your extended vacation or meditation retreat or whatever for the August – September period. Trade strategies should be oriented to long side for the first half of a PreElection Year. See page 5-37 for details.

Pre-Election Years: Summer High to Fall Low: Average -9% Every Pre-Election Year since 1951 made a decline from the Summer High (highest daily close of summer) to the Fall Low (lowest daily close of Fall). This has been the weakest period, on average, of a Pre-Election Year. But, there is no specific trade strategy for this period. See page 5-39 for details.

5-49

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year Fall Low to Year End: Average +9.3% PEYs

Fall Low to Year End

9/1 to YE

10/1 to YE

11/1 to YE

Average

9.3%

3.2%

3.6%

3.6%

PEYs have a strong tendency for a bull trend from a fall low into yearend. The fall lows are spread out from mid-September into November, so it will take some attention and technical experience to recognize if the S&P is in a position to complete a fall low. But the rewards are well worth the effort. Here is some helpful and practical information. Since 1951, in only two PEYs did the S&P close the year below the low close made in September, only once below the low close of October and every PEY since 1951 closed the year above the low close made in November. At the end of September, October and November you can use these overwhelming statistics for go-long trade strategies and stop placement or adjustments, especially when you consider the Santa Claus Rally potential. See page 5-40 for details.

____________

5-50

Chapter 5: Pre-Election Years

The Pre-Election Year Santa Claus Rally

The period from the trading day prior to Thanksgiving to the trading day prior to Christmas has a very high probability of a positive return.

The Santa Claus Rally since 1951 Thanksgiving to Christmas Ave: 4.1%

Thanksgiving to Year End Ave: 4.4%

Christmas to Year End Ave: 0.3%

3 of 18 (17%) of the T-C negative: Range: -0.4% to -1.8% 12 of 18 (67%) gained less than 1% gain from Christmas Eve to Year End: Range: 4% to -2.5%

While being long every year from Thanksgiving to Christmas may not be profitable, in most PEYs years it is and the years that were not had small losses. Importantly, the period from Christmas to Year End was usually not productive with only a 0.3% average gain. Twelve of the 18 years had a gain of 1% or less. Christmas to Year End could be a good time to ignore the markets and celebrate the holiday season. See page 5-43 for details.

____________

5-51

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Trader’s Pre-Election Year Calendar

The Pre-Election Years have been the strongest of the four years in the election cycle, on average, since 1951. The first half of the Pre-Election Year is the latter part of the Election Cycle Sweet Spot, typically the most dynamic period of an Election Cycle. The outstanding statistic is there has only been one Pre-Election Year loss since 1951 (2015). That annual loss was only 1%. Pre-Election Years are definitely years to be prepared to take advantage of a bull market.

Democrat Vs Republican Administrations There has been no bias toward one political party or the other or 1st or 2nd terms in Pre-Election Years since 1949. See page 5-9 for details

January (Year Open to Summer High seasonal trend) On average, Pre-Election Years are Bullish from the beginning of the year into a Summer High (late-June to September 19). Several years have continued net bullish right through September which is why September 19, the last day of summer, is often shown as the Summer High. There have been no PEYs that were negative from the Year Open into a Summer High. Since 1949, the average advance from the Year Open to July 1 has been 12%. A PEY has not had a loss from the Year Open to July 1 since 1949. See page 5-37 for details

July (Summer High to Fall Low seasonal trend) Beginning in July, apply your technical analysis to help identify when the S&P may be in a position to make a top lasting several weeks or so to complete a summer high. The average advance from the Year Open to July 1 has been 12.3%. The average gain from the Year Open to the Summer High is an impressive 18.1%. In several years, the bull trend continued through September showing impressive gains as the Summer High must be calculated no later than September 19.

5-52

Chapter 5: Pre-Election Years Also, be aware that, on average, the Summer High (highest close made by September 19) is often at or near the high of the year. The average from the Summer High to the Year End close is a negative 1.1%. The S&P trends to be sideways to down from a Summer High to the Fall Low. See page 5-39 for details

Late September (Fall Low to Year End Seasonal Trend) Most years have a Fall Low to Year End net bull trend. This period for the Pre-Election Years has been particularly consistent. Beginning in late September, use your technical analysis to identify when the S&P should be in a position to complete at least a weekly low for the potential to continue a bull trend into the end of the year. Since 1951, a PEY closed the year below the September low only two times; closed the year below the October low only once; and never closed the year below the November low. See page 5-40 for details.

The Santa Claus Rally Since 1951, PEYs have had an average gain of over 4% from the trading day prior to Thanksgiving to the trading day prior to Christmas. Only 3 of 18 PEYs were not positive. A strong bull trend from a fall low into Thanksgiving has usually had additional gains going into Christmas. Typically, any follow-through into the end of the year after Christmas has been minimal if a gain at all. Consider a relaxing vacation the last week of the year. See page 5-43 for details. __________

5-53

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Pre-Election Year Opportunities

Pre-Election Years have had some of the most consistent seasonal trends of any year in the Election Cycle. Incorporate these biases with your technical analysis strategies to help increase returns and avoid drawdowns. __________ Keep Up To Date with the current position of the Stock Market and Election Cycle at www.DTElectionCycle.com. __________

5-54

Chapter 6:

Election Years

Election Years Table of Contents What You’ll Learn About Election Years ................................................... 6-2 The Election Year (EY) in the Election Cycle ............................................ 6-3 Election Years By Political Party .............................................................. 6-9 The Election Year Charts: Year by Year .................................................. 6-15 Election Year Double News Events ......................................................... 6-36 Election Year Seasonal Trends ................................................................ 6-47 Election Years Key Factors Table ............................................................ 6-57 Election Years Key Factors and Trade Strategies .................................... 6-60 Trader’s Election Year Calendar ............................................................. 6-64 Election Year Opportunities ................................................................... 6-66

6-1

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

What You’ll Learn About Election Years

➢ The Election Year Quarter with very low average returns and a high loss rate. ➢ The Political Party with outstanding, consistent returns. ➢ The type of election that has had an overwhelming positive bias. ➢ The Election Year seasonal trend that has had only one loss since 1949. ➢ At the end of the chapter, an Election Year calendar to prepare you in advance for the high probability biases to incorporate into your trade plan. ➢ And lots more.

____________

6-2

Chapter 6: Election Years

The Election Year (EY) in the Election Cycle

The Election Year is the final year of the four-year Election Cycle. The chart below is the four-year Election Cycle to show the Election Year in the context of the prior three years of the cycle. The trend structure of the average of all election years since 1949 (black line) is almost identical to the average of all election years since 1981 (grey line) although the average of the years since 1981 has better returns. On average, the Election Year is net bullish from a spring low. But we know to be wary of averages which could include years that were negative.

Average Returns for Election Cycle Years and Terms S&P Returns Avg Since 1949 # Neg Years Avg Since 1981 # Neg Years

8%

MidTerm Election Years 5%

7 of 19

8 of 19

1 of 18

3 of 18

3 of 18

16%

4%

15%

4%

44%

2 of 12

5 of 12

1 of 11

3 of 18

2 of 18

Post Election Years

6-3

Pre Election Years

Election Years

17%

7%

Avg of the 4Year Cycles 40%

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Election Year Average Cycles from 1952 and 1984 What does an average Election Year look like? The chart below includes the average Election Year trend for all years since 1952 (black line) and years since 1984 (gray line). Both average cycles have the same structure but the average of the years from 1952 outperforms the average of the years since 1984 with more shallow corrections in the second and fourth quarters.

____________

6-4

Chapter 6: Election Years

Election Year Average Cycles without 2008 2008 was the heart of the Great Recession with a net bear trend throughout the year. The EY cycles, not including 2008, show a much smoother cycle and greater average return.

I don’t want to imply we should ignore the outliers. On the contrary, we should plan on more of them, but that is another cyclic story. But it does show how one outlier can dramatically change the average trend. Not including 2008 in the averages, results in a less volatile average trend, particularly the second half of the year where the Fall correction is more sideways to down, on average.

____________

6-5

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

All Election Years Chart The chart below includes all Election Years from 1952 to 2020. While the Election Years are more tightly grouped then the other years in the Election Cycle, I wouldn’t want to place a bet from the average trend without looking more closely at the underlying data for high probability seasonal trend. Note that several years were well below the Year Open into summer. Just eyeballing the chart looks like most years were net positive the fourth quarter or from a Fall Low to the Year End. We’ll look more closely at all the data to see if there is one or more seasonal periods that have a strong bias in an Election Year we can take advantage of.

6-6

Chapter 6: Election Years

Election Year Returns by Quarter and Annually

Truman

1st Qtr 2.5%

2nd Qtr 2.5%

3rd Qtr -1.6%

4th Qtr 8.3%

1956

Eisenhower

6.6%

-3.1%

-3.4%

2.9%

2.4%

1960

Eisenhower

-7.7%

2.9%

-6.0%

8.6%

-3.0%

1964

Kennedy

5.3%

3.4%

3.1%

0.7%

13.2%

1968

Johnson

-6.5%

10.4%

3.1%

1.2%

8.5%

1972

Nixon

5.0%

-0.1%

3.3%

6.8%

15.7%

1976

Nixon

14.0%

1.5%

0.9%

2.2%

16.1%

1980

Carter

-5.4%

11.9%

9.9%

8.2%

26.7%

1984

Reagan

-3.5%

-3.8%

8.4%

0.7%

0.8%

1988

Reagan

4.8%

5.6%

-0.6%

2.1%

12.4%

1992

Bush

-3.2%

1.1%

2.4%

4.3%

8.2%

1996

Clinton

4.8%

3.9%

2.5%

7.8%

22.9%

2000

Clinton

1.3%

-2.2%

-1.2%

-8.1%

-10.1%

2004

Bush

1.3%

1.3%

-2.3%

8.7%

10.4%

2008

Bush

-9.9%

-3.2%

-9.0%

-22.4%

-41.0%

2012

Obama

12.0%

-3.3%

5.8%

-1.0%

11.5%

2016

Obama

0.8%

1.9%

3.3%

3.3%

9.5%

2020

Trump

-20% 1st Qtr 1.3% 7 of 18 -1.2% 4 of 10

20.0% 2nd Qtr 1.8%

8.5% 3rd Qtr 1.1% 7 of 18 1.8% 4 of 10

11.7% 4th Qtr 2.0%

14.3%

EY

President

1952

AVG since 1952 Negative Quarters / Annual AVG since 1984 Negative Since 1984 AVG since 1952 W/O 2008 AVG since 1984 W/O 2008

6 of 18 2.1% 4 of 10

3 of 18 0.7% 3 of 10

Annual 11.0%

Annual 7.2% 3 of 18 3.9% 2 of 10

0.7%

3.2%

2.1%

4.0%

10.0%

-0.2%

2.7%

3.0%

3.3%

8.9%

The quarterly statistics reflect the relatively poor average performance of the first quarter of an Election Year. Seven of the eighteen years had a negative first quarter and, depending on how we parse the data, anywhere from a modest average advance to a negative first quarter. 6-7

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends The fourth quarter is consistently the best, on average, particularly if we exclude 2008. There have only been three negative fourth quarters since 1952.

Election Years Since 1952 Sorted by Annual Return From Worst to Best EY

Annual Gain/Loss

2008

-38.5%

2000

-10.1%

1960

-3.0%

1984

1.4%

1956

2.6%

1992

4.5%

1968

7.7%

2004

9.0%

2016

9.5%

1952

11.8%

1988

12.4%

1964

13.1%

2012

13.4%

1972

15.7%

2020

16.3%

1976

19.2%

1996

20.3%

1980

25.9%

AVG EY

7.3%

Range

# in Range

< 0%

3

0-10%

While the average trend of all election years since 1952 is positive, the annual results are fairly evenly distributed from the worst year to the best year. When results are evenly distributed between the extremes, it clearly indicates we need to beware that the average is not necessarily representative of a typical year.

6

10%19%

7

20%+

2

Election Years by Annual Return If you begin an Election Year expecting a gain of 7.3% or more, you may be in for a big surprise.

As we’ll see when we break down the data year by year, there are many years that have closed the year positive, but were widely volatile during the year, sometimes spending most of the year negative. However, we will find there are a few strong seasonal tendencies with most Election Years that are very consistent we can take advantage of most years.

3 of 18 Years since 1952 = Losses

6-8

Chapter 6: Election Years

Election Years By Political Party

EYs With Democrat Presidents

EYs With Republican Presidents

EY

President

%

EY

President

%

1952

Truman

11.0%

1956

Eisenhower

2.4%

1964

Kennedy

13.2%

1960

Eisenhower

-3.0%

1968

Johnson

8.5%

1972

Nixon

15.7%

1980

Carter

26.7%

1976

Nixon

16.1%

1996

Clinton

22.9%

1984

Reagan

0.8%

2000

Clinton

-10.1%

1988

Reagan

12.4%

2012

Obama

11.5%

1992

Bush

8.2%

2016

Obama

9.5%

2004

Bush

10.4%

2008

Bush

-41.0%

2020

Trump

14.3%

Democrat Average Since 1952

Republican Average Since 1952 Republican Average Since 1952 W/O 2008

11.6%

6-9

3.6% 8.6%

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends Since 1952, the average Democrat Election Year gain is 11.6%. The average Republican Election Year gain is just 3.6%. Election Year Democrat administration returns are much greater, on average, than Republican administrations. If we eliminate the 2008 Republican year disaster, the Democrat advantage is less significant. It shows how one extreme outlier data point in a relatively small sample size can skew the data.

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6-10

Chapter 6: Election Years

Election Years: Incumbent versus Open Field An incumbent year is when the current president is available to run for reelection. An Open Field year is when the incumbent president either can’t run for re-election because it is his second term, or he chooses not to run for re-election.

Incumbent Election Years

Open Field Election Years

1956

Eisenhower

2.6%

1952

Truman

11.8%

1972

Nixon

15.7%

1960

Eisenhower

-3.0%

1976

Nixon/Ford

19.2%

1964

Kennedy/Johnson

13.2%

1980

Carter

25.9%

1968

Johnson

8.5%

1984

Reagan

0.8%

1988

Reagan

12.4%

1992

Bush Sr.

8.2%

2000

Clinton

-10.1%

1996

Clinton

22.9%

2008

Bush

-41.0%

2004

Bush

10.4%

2016

Obama

9.5%

2012

Obama

13.4%

2020

Trump Incumbent EYs Average

16.3%

Open Field EY Average: 0.1% Open Field EYS AVG (W/O) 2008: 6.0%

13.5%

6-11

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends The years when an Incumbent president is running for re-election are, on average, much better than those years with an Open Field. It makes sense. A sitting president running for a second term is highly motivated to influence a boost to the economy as much as possible going into the November election. Since 1952, there have been no incumbent election year losses. Most incumbent election years are well into the double-digit returns. Looking to take a sabbatical year off? You might wait for the next Open Field election year! If we eliminate the 2008 Great Recession year from the Open Field years, the average jumps up to 6%, showing how one outlier in a relatively small sample size can dramatically change the average results. Even not including 2008, the Incumbent Years have a big lead over the Open Field Years. No Election Year since 1952, when the incumbent is running for re-election, has had a loss.

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6-12

Chapter 6: Election Years

Election Years: 1st Term Vs 2nd Term

1st Term Election Years

2nd Term Election Years

1956

Eisenhower

2.4%

1952

Truman

11.0%

1964

Kennedy

13.2%

1960

Eisenhower

-3.0%

1968

Johnson

8.5%

1976

Nixon

16.1%

1972

Nixon

15.7%

1988

Reagan

12.4%

1980

Carter

26.7%

2000

Clinton

-10.1%

1984

Reagan

0.8%

2008

Bush

-41.0%

1992

Bush

8.2%

2016

Obama

9.5%

2016

Clinton

22.9%

2004

Bush

10.4%

2012

Obama

11.5%

2020

Trump

14.3%

st

1 Term EYs Average

12.2%

2nd Term EYs Average 2nd Term EYs Average (W/O 2008)

-0.7% 6%

The 1st term versus 2nd term results are similar to the Incumbent verses Open Field results because most of the years overlap. The 1st Term Election 6-13

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends Years, which include incumbents that may not be running for re-election, have a huge lead over the 2nd term, particularly in the second half of the year. No Election Year with a first term president, whether running for re-election or not, has shown a loss for the year.

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6-14

Chapter 6: Election Years

The Election Year Charts: Year by Year

Let’s take a look at the chart and comments for each Election Year since 1952 to see what reliable information could help us make confident, high probability decisions during an Election Year. Viewing the chart for each year will demonstrate the wide variety of trends throughout the years and why to be wary of simply trusting an average which may not represent a typical year.

Election Year Seasonal Trends Each of the years of the four-year election cycle have seasonal biases. Election Years are often relatively weak into the spring from where a Spring Low to Summer High is often made. This trend and others are noted in the comments for each Election Year chart.

Report Layout and Abbreviations Readability and accessibility are very important in a study filled with charts. There is a lot of white space on some pages because I want to be sure the charts and comments are together on the same page in a consistent format.

The Chart Page Format Each chart shows the SPX weekly closes for each Election Year (EY) since 1952. I use weekly closes because it effectively smooths out some of the volatility and more clearly shows the seasonal trends. The percentage changes for the Year and Seasonal periods use daily closes. Each chart has a horizontal line at the last week ending of the prior year. This week-ending price may not always be the exact year-end price but close enough for our purposes. The heading of the chart shows the year and net change for the Election Year (EY) as well as the net change for the prior year (PEY: Pre-Election Year). Key comments are on the chart at significant highs and lows. Below the chart are additional comments for each year including the seasonal trends.

6-15

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Chart Abbreviations / Terms Inc: Incumbent. The current president sitting in office. Will show if a first term or second term. A second-term incumbent president cannot run for reelection. OF: Open Field. An Open Field is a year that the incumbent president either can’t run for re-election because he is in his second term or chooses not to run for re-election. D: Democrat Party R: Republican Party PtEY: Post-Election Year MEY: Mid-Term Election Year PEY: Pre-Election Year EY: Election Year SL: Spring Low. March to June 19. SH: Summer High. June – September 19. FL: Fall Low. September - November ED: Election Day YE: Year End. The last trading day or the last weekly close of the year.

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6-16

Chapter 6: Election Years

Election Year 1952: (PEY +17%) +12%

Election (OF): Truman (D), 1st Term. Truman choose not to run for reelection. Spring Low-Summer High (April–August): +10%. A distinct corrective decline into the April low followed by a consistent bull trend to the August, Summer High. Summer High–Fall Low (August-October): -7%. Typical Summer high to Fall low. Fall Low (October 22) to Year End: +12%. Strong trend into the end of the year. Election Day to Year End: +8% Comments: 1952 included all three typical seasonal trends.

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6-17

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

Election Year 1956 (PEY 26%) +2.6%

Election (Inc): Eisenhower (R), elected to 2nd Term. Spring Low – Summer High (May–August): +11% Summer High–Fall Low (August- November): -9%. August = High for the Year, followed by a net Bear trend into Nov. Fall Low (November 30)–Year End: +4%. A mild advance from the Fall Low to the Year End. Election Day to Year End: -1%. One of the few years the year closed below Election Day. Comments: The average mid-summer to early fall trend is sideways to down. Some years have a sharp decline during this period, a few a net advance. The mid-summer to early-fall period is generally the weakest period of an Election Year.

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6-18

Chapter 6: Election Years

Election Year 1960 (PEY: 9%) -3%

Election (OF): Eisenhower (Rep), 2nd Term. Year Open: High of the year. Very unusual to have the Year Open the high of the year for an Election Year. Spring Low–Summer High (March–August): +9%. The June and August highs essentially double-topped to complete a Summer High. Summer High–Fall Low (June–October): -8%: Typical summer high into a fall low. Fall Low (October 25)–Year End: +11%. A strong bull trend into the end of the year. Election Day to Year End: +5% Comments: Even though there was a net loss for the year and the entire year was below the Year Open, the S&P made the typical intra-year, seasonal trends of the Spring Low–Summer High, Summer High-Fall Low and Fall Low–Year End which we look to take advantage of each year. 6-19

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1964 (PEY: +19%) +14%

Election (Inc): Incumbent: Kennedy / Johnson (D). Kennedy was assassinated during his first term in November 1963, and Vice-President Johnson became President. This could be considered an Open Field election because Johnson was running for his first term as President, but it is considered the second term of the Kennedy / Johnson administration, so we will treat this as an Incumbent election for our purposes. Spring Low–Summer High (March–July): +8%. There was no discernable swing low in March, so I’ve used the lowest close in the month of March into the distinct high in July. Summer High–Fall Low (N/A): The “summer high” in mid-July was followed by a minor, five-week correction into late August, not really a Fall Low. Fall Low–Year End (N/A): No discernable “fall low”, but a net bull trend from the lows of September – November into Year End.

6-20

Chapter 6: Election Years Election Day to Year End: 0%. No enthusiasm after the election. If the change from Election Day to the Year End is less than +/- 1%, I round to 0%. Comments: One of the few years without a Summer–Fall decline, but a consistent bull trend from the Year Open almost into Year End.

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6-21

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1968 (PEY: +20%) +8%

Election (OF): Johnson (D) was in his first term but did not run for reelection, so it is an Open Field year since the incumbent did not run. Spring Low–Summer High (March–July): +17%. In almost every year when the S&P is below the Year Open going into March, a typical Spring Low is usually made in March or April. Summer High–Fall Low (N/A): The same reaction as the prior year. The “summer high” in mid-July was followed by a five-week correction into late August, not really a Fall Low. Fall Low to Year End (N/A): Similar to the prior year. A consistent bull trend from the August low into Year End. Election Day to Year End: 0%. Less than 1% difference from ED to YE. Comments: There are only three Election Years without a distinct Summer High–Fall Low. 1964 and 1968 were two of them, 1980 the other. If the early weeks of the year begin bearish, be prepared for a distinct “Spring Low” beginning in March followed by at least several weeks of net bull

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Chapter 6: Election Years

1972 (PEY: +11%) +16%

Election (Inc): Nixon (R), 1st Term, running for a 2nd term. Spring Low–Summer High (May–August): +6%. Not a strong bull trend, but net bull into August. Summer High–Fall Low (August–October): -4% Fall Low (October 16)–Year End: +11%: Consistent bull trend from the October low into Year End. Election Day to Year End: +4%. Comments: A lethargic market into the October low. Nixon must have really juiced up the economic statistics going into the election.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1976 (PEY: +32%) +19%

Election (Inc): Incumbent: Ford (R), 2nd Term (Nixon/Ford). Ford ascended to the Presidency when Nixon resigned in August 1974. While 1976 was the 2nd term of the Nixon/Ford Presidency, I consider it an incumbent election year since Ford was effectively running for re-election. Spring Low–Summer High (March–July): +7%. The March low was exceeded by a fraction of a point on a daily closing basis, but not by a weekly close. Summer High–Fall Low (July–November): -7%. While the July high was exceeded slightly in September, the trend was net bear from the July (summer) high into the November low. Fall Low (November 11)–Year End: +9%. Election Day to Year End: +8%. Comments: While there was a lot of volatility and a choppy market from the Spring High to Year End, the S&P still made the typical intra-year, seasonal trends.

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Chapter 6: Election Years

1980 (PEY: +12%) +26%

Election (Inc): Carter (D), 1st term. Carter lost to Reagan (R). A short pop after the election. Finished the year higher than election day. A huge up year going into the election, yet the incumbent lost! Some elections are about more than the stock market. Spring Low–Summer High (March–August): +28%. The Spring Low was made in April on the weekly closing data but in March on the daily closing data. There was no distinct Summer High, so I used the high close of the summer period for a Summer High. Summer High–Fall Low: N/A. An exceptionally bullish year with no Summer High to Fall Low. Fall Low–Year End: There was no Fall Low, but the trend was consistent with the typically net bull trend from the fall into the Year End. Election Day to Year End: +3%. Comments: Relentless bull trend following the spring low. How could Carter, the incumbent, not win?! Sometimes elections are about more than the economy.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1984 (PEY: +17%) +1.4%

Election (Inc): Reagan (R), 1st Term. Spring Low–Summer High (March–September): +7%. While the S&P took a dive into June after the March low, it recovered strongly into midSeptember for a net positive Spring Low–Summer High. The September high was just a bit above the August high. Summer High–Fall Low (September – December): -4%. While early December is a bit late for a typical Fall Low, fall officially continues to December 19, the winter solstice. December was only a few points below the October low. Fall Low (December 7)–Year End: +2%. Not much of a Year-End rally, but still typically net Bull. Election Day to Year End: 0%. Less than 1% change on the daily closing day from ED to YE. Comments: Very atypical bear trend into mid-summer (June) followed by strong recovery into September for a net bull trend from the Spring Low to the Summer High. 6-26

Chapter 6: Election Years

1988 (PEY: +2%) +12.4%

Election (OF): Reagan (R) 2nd Term. Spring Low–Summer High (May–July): +10%. The weekly closing data shows June with the highest summer weekly close, but a higher daily close was made in July. Summer High–Fall Low (July–November): -5%. While the S&P made a new high above the Summer High in October, it then declined to make a November close below the July high for a net bear trend from the Summer High to the Fall Low. Fall Low (November 16)–Year End: +5%. Election Day to Year End: +4%. Comments: One of the few Election Years when the March low was exceeded, but it was then followed by a quick recovery and net bull trend from the May low into Year End.

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The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

1992 (PEY: +26%) +4.5%

Election (Inc): H. W. Bush (R) 1st term. Spring Low–Summer High (April–August): +8%. August 3 made a slightly higher daily close than the July close, although July made a slightly higher weekly close. Summer High–Fall Low (August–October): -5%. Fall Low (October 9)–Year End: +8%. Election Day to Year End: +4%. Comments: A mediocre stock market performance going into the election which didn’t help Bush and he lost the election. Although, we’ve also seen strong bull trends going into the election and the incumbent also lost. The performance of the stock market going into an election does not predict who will win the election. Sometimes elections are not just about the economy. That’s a subject for another study.

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Chapter 6: Election Years

1996 (PEY: +34%) +20%

Election (Inc): Clinton (D), 1st Term. Clinton was re-elected. Spring Low–Summer High (April–July): +7%. The March low on the weekly closing data was not exceeded by a weekly close for the balance of the year. April had the lowest daily close. The percentage changes are from the daily data. Summer High–Fall Low (July–September): -4%. An intervening lower low was made in July, but the trend was net bear from summer into early September. Fall Low (September 5) to Year End: +14%. The S&P was consistently net bull from the early fall low to the Year End. Election Day to Year End: +4%. Comments: 1996 showed the Election Year seasonal tendencies of net bullish from spring into summer, sideways to down from summer into fall, and net bullish from fall into the Year-End. It was a strong year, especially the months going into the election, which surely helped Clinton’s reelection. 6-29

The Definitive Guide to the U.S. Election Cycle and Stock Market Trends

2000 (PEY: +20%) -10%

Election (Inc): Clinton (D), 2nd Term. Spring Low–Summer High (April–September): +12%. Summer High–Fall Low (September–November): -13%. Fall Low (November 30)–Year End: