By Tyler Durden
Authored by Dmitri Speck via Acting-Man.com,
The Vote Buying Mirror
Our readers are probably aware of the influence the US election cycle has on the stock market. After Donald Trump was elected president, a particularly strong rally in stock prices ensued. Contrary to what many market participants seem to believe, trends in the stock market depend only to a negligible extent on whether a Republican or a Democrat wins the presidency. The market was e.g. just as strong under Democratic president Bill Clinton as it was under Republican president Ronald Reagan.
The mid terms specter.
From a statistical perspective, the decisive factor for the market trend is not the party allegiance of the president, but rather the year of the presidency. In this context we speak of the presidential cycle, which has a distinct pattern over its four year duration.
The following chart depicts this election cycle, i.e., the average four-year pattern of the Dow Jones Industrial Average over more than a century. On the left hand side you see the pattern during the election year, followed by the first post-election year. Thereafter comes the mid-term pattern – which is highlighted by a red circle – and lastly the pre-election year pattern.