Presidential Election Cycle (Theory)

AAA

DEFINITION of 'Presidential Election Cycle (Theory)'

A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a new U.S. president. According to this theory, after the first year, the market improves until the cycle begins again with the next presidential election.

INVESTOPEDIA EXPLAINS 'Presidential Election Cycle (Theory)'

While the theory played out relatively reliably in the early to mid 1900s, data from the later twentieth century has disproved it.

In 1937, Franklin D. Roosevelt's first year, the market was down by 27.3%. The Truman and Eisenhower eras also started off with a down year in the stock market. The start of more recent presidencies, however, did not show the same pattern. In George H.W. Bush's first year, the market was up 25.2%, and the start of both of Bill Clinton's terms showed strong market performance - up by 19.9% and 35.9%.

RELATED TERMS
  1. Aspirin Count Theory

    A market theory that states stock prices and aspirin production ...
  2. Skirt Length Theory

    The idea that skirt lengths are a predictor of the stock market ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a ...
  4. Leading Lipstick Indicator

    An indicator based on the theory that a consumer turns to less ...
  5. Sports Illustrated Swimsuit Issue ...

    An indicator based on the nationality of the model on the cover ...
  6. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston ...
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Active Trading

    The Leap-Year Phenomenon

    Find out if you can build a strategy around the behavior of the market in the presidential cycle.
  3. Fundamental Analysis

    The Market And Presidential Promises

    How can the presidential election affect your portfolio? Find out here.
  4. Fundamental Analysis

    For Higher Stock Returns, Vote Republican Or Democrat?

    The president's political party is correlated to market performance. Find out which party tends to outperform.
  5. Active Trading

    Market Cycles: The Key To Maximum Returns

    You need to understand the various phases of the market cycle to avoid bubbles and make the best investments.
  6. Retirement

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  7. Mutual Funds & ETFs

    Which ETF is the Best Bet: VTI or IWV?

    A look at two quality ETFs that offer diversification, low expense ratios, and exposure to the total market.
  8. Economics

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  9. Markets

    Capital Markets

    Capital Markets are financial markets where organizations that need money for productive long-term purposes.
  10. Bonds & Fixed Income

    Spotting A Market Bottom

    Recognizing a market bottom can lead to huge opportunities for an investor. We go over how you can spot the bottom so that you can reap the rewards.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center