Presidential Decline?
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The market typically advances in the third year of a presidential cycle; the S&P 500 fell only twice during such years over a period of more than 80 years, according to data from S&P Capital IQ, Standard & Poor's research division. But it looks like 2011 will likely buck the trend. As of Dec. 16, the S&P was down 1.05 percent for 2011. What could this mean for 2012? Historically, if performance in the third year of the cycle is sub-par — less than 10 percent growth — the fourth year should see a decline. “If investors believe they have nothing to look forward to, it shows up first in sub-par third year performance and is then confirmed in a fourth year decline,” said Sam Stovall, chief equity strategist at S&P Capital IQ. According to S&P Capital IQ, there have been six times since 1927 when the S&P rose by less than 10 percent in the third year of a presidential cycle. In year four following these disappointments, the S&P fell 10 percent on average, with five of the six instances being negative.
