Presidential Election Cycle (Theory)
Categories: Financial Theory
In strict numerical terms, the presidential cycle equals four years. That stretch of time defines a U.S. presidential term. Meanwhile, in political terms, the election cycle looks something like this: a bunch of egotistical no-name clowns banter about nonsense for about 18 months, then voters whittle down the field to a single clown from each party, until, finally, as a nation, we pick one of them to be Leader of the free world for that four-year stretch.
The theory we're talking about here puts the cycle into another context. It looks at the presidential election in terms of the stock market. The theory goes like this:
Action in U.S. stock markets tend to show weakness in the first year following a presidential election year. From there, things often improve...until the next election rolls around, of course.
The theory, detailed by Yale Hirsch, creator of the Stock Trader's Almanac, isn't perfect. It's not like charting when a future eclipse will happen, or predicting that digestive trouble will follow a large meal of Indian food. Instead, the theory merely describes a tendency: the market will likely be weakest in the year following the election of a new U.S. president.
As it just tracks a tendency, it often doesn't prove to be true. Also, unfortunately for backers of the theory, it proved more true in the mid-20th Century (closer to when Hirsch first developed the proposed presidential election/stock market connection) then it has been since.
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Finance: What is a Business Cycle?3 Views
Finance allah shmoop What is a business cycle Well here's
a guy giving his cycle the business Yeah the bike
moves forward in time but this little white mark on
the tire while it keeps returning to the same place
again and again and again So yeah that's the foundation
of the notion of business as a cycle time continues
but you know business gets hot then cold then hot
then cold and yeah you get the idea Well why
is this the case Well lots factors They mostly revolve
around the wild pagan dance of greed and fear And
they get exacerbated when governments actively monkey around with the
cost of renting money otherwise known as the raising and
lowering of interest rates And if you're new to this
whole space if you lower interest rates and make money
cheap to borrow you heat up the economy or at
least you encourage it to get hot And if you
raise the cost of borrowing money well then you're going
to try to cool it off And the reason he
might want to do that is if inflation is roaring
right All right well in the us the business cycle
Runs roughly every eight years for what is called the
short cycle of business cycles for reasons only partly known
to humankind the money cycle revolves around the presidential election
cycle when historically every couple of terms the population gets
sick of one process of messing up government and they
choose to elect a new way to mess up government
So that's The short cycle happens every seven or eight
years and you see it in the stock market with
generally meaningful corrections Along that pattern there's also ate a
long business cycle that sees major shift about every quarter
century World wars affected numbers Technology innovation affects the numbers
and other exogenous factors like pollution and labor replacement by
robots Yeah yeah it's coming and healthcare or disease changes
and or big innovations that completely repaint the pavement such
that the tire slipped and turn and twist trying to
keep the bicycle upright The key goal Look outfor bollards