Per Year
2008
INVESTING IN ELECTION YEARS! June 13, 2008.
Since 1940 there have been only four negative election years, in which the market was down by year end, with the declines averaging just 5.2%.
The most recent occurrence was the year 2000, when the Dow was down 13.2% in a mid-year correction but rallied back to close down just 6.2% for the year (even though as it turned out, it was the first year of the severe 2000-2002 bear market).
So this election year has been somewhat unusual so far.
The Dow was already 6.5% below its peak of last October when this year began. It then declined another 11.5% from the beginning of the year to its correction low in early March. At that point it was 19% below its peak of last October, very close to the definition of a bear market (a 20% decline).
An intermediate-term rally began from the oversold condition at that March low. But at least at the moment it looks like it ended in early May. The Dow is now down 6.5% over the last six weeks, and down 14% from its peak of last October, with many analysts predicting it is on its way down to at least retest its March low.
So, what is so different about this election year?
I believe it comes down to this.
In almost every instance of the Four-Year Presidential Cycle since at least 1918, economic slowdowns, serious stock market corrections, and bear markets, have taken place in the first two years of each Presidential term, while Washington ignored the economy and allowed the correction of excesses to take place.
Then like magic, Washington’s focus would turn to the economy in the 2nd and 3rd years of each term. All the stops would be pulled out, in the way of lower interest rates, increased government spending, and whatever other stimulus efforts were needed to make sure the economy was strong by the time the next election year arrived.
That has been the norm no matter which party was in office, and is the basis of the extremely consistent Four-Year Presidential Cycle.
It sure happened that way in the first administration of President Bush, with the 2000-2002 bear market in the first two years of the term, and then the largest stimulus plan ever to come out of Washington in 2002 and 2003, in plenty of time to end the bear market, and have the economy and stock market looking good in time for the 2004 election campaign.
However, that did not happen in this Four-Year Presidential Cycle.
There was not even a 10% ‘pullback’ in the market in 2005 and 2006, let alone a normal market correction. And in spite of the housing bubble bursting in 2006, economic growth slowing, and the banking system coming close to total collapse last year, there were no stimulus efforts to provide support for the economy until this year, the election year.
So here we are in a rare election year indeed, when rather than being super strong, the economy is slowing dramatically, and may even be in a recession within months if it is not already. (The Fed is now forecasting economic growth for this year of only 0.3% to 1.2% for the year, down from its already dismal forecast of 1.3% to 2.0% just a couple of months ago).
Rather than being optimistic and full of enthusiasm, as is usually the case in the good economic times of election years, consumer and corporate confidence levels are at multi-year lows of pessimism. For example, the University of Michigan/Reuters Consumer Sentiment Index released Friday morning fell to just 56.7 in June, down from 59.8 in May, and down from 96.9 sixteen months ago. This month’s reading is a 28-year low.
So, although election years tend to be positive for the stock market, the risk of a serious correction this year can hardly be argued against simply because it is an election year. This is one of the most different election years ever for the economy and the market.
Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beating the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
About the Author:
Sy Harding is CEO of Asset Management Research Corp., author of 1999′s Riding the Bear and 2007′s Beat the Market the Easy Way, editor of www.StreetSmartReport.com, and www.SyHardingblog.com.
Article Source: ArticlesBase.com – Investing in Election Years!
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