Most stock market investors are familiar with The Presidential Cycle—the fact that the US market, as measured by the S&P 500, has on average, meaningfully outperformed its long-term rate of return in the third year of the President’s term, regardless of whether the White House is held by a Republican or Democrat. More specifically, according to Strategas, a leading institutional research firm and investment manager, the S&P 500 has returned an average of 16.8% in the third year of the President’s term since 1948, easily outdistancing its average annual return over the same time period of about 11%. Now considering that the S&P 500 is down about 21% year-to-date, 2023 – which will be year three of the Presidential Cycle – can’t come soon enough!
That written, there is another, albeit less well-known, Presidential Cycle that ties back to the real economy, which, if past is prologue, also points to brighter days to come in 2023. Again, according to Strategas, going all the way back to 1929, the US has never experienced a negative year of GDP growth during the third year of a President’s term, regardless of who is sitting in the White House (see chart). We find the data point particularly compelling and timely given that most major Wall Street firms and US banks seem to be calling for a recession in the new year. Now, why markets and the economy tend to do well during the third year of The Presidential Cycle is very much up for debate – some think there is no rhyme or reason to the pattern, just simply chance while others think that any President will do all they can to push the economy and the markets up and to the right in the third year of their term to better ensure their own reelection or the election of their party’s nominee come the next general election. Truth be told, no one really knows why the patterns have held for so long. But given how difficult a year it has been for the US economy and US stock market, we will take all the positive data points we can get!
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 1997-BCI-10/24/2022