If you’re not paying attention to the presidential cycle when it comes to your investments, you’re leaving serious money on the table. As the renowned Marc Lichtenfeld recently pointed out, “The most successful investors realize that it’s not always a matter of which stocks to buy – it’s also about when to buy them.”
The most successful investors realize that it’s not always a matter of which stocks to buy – it’s also about when to buy them.
Marc Lichtenfeld
Lichtenfeld’s analysis of stock market performance during each year of the presidential cycle is eye-opening. He notes that “on average, all four years are positive. The bad news is that if history is any guide, next year will be a bit of a dud.”
On average, all four years are positive. The bad news is that if history is any guide, next year will be a bit of a dud.
Marc Lichtenfeld
Just take a look at this chart from his article:
The data is clear – the first year of a presidential term has historically been the weakest for stocks, with an average gain of just 3% going back to 1896. Meanwhile, the third year is typically the strongest, with a whopping 10.2% average return.
Now, Lichtenfeld is quick to point out that recent history has bucked this trend somewhat, with stocks posting huge gains in the first years of the **Obama**, **Trump**, and **Biden** administrations. But he also astutely notes that “every president and every Congress will have different policies that affect the stock market in various ways.”
Every president and every Congress will have different policies that affect the stock market in various ways.
Marc Lichtenfeld
So what does this mean for you, dear reader? It means you need to be strategic about when you deploy your investment capital. As Lichtenfeld puts it, “knowing that the first year of a president’s term has historically been the weakest for stocks is a useful piece of information to file away.”
Knowing that the first year of a president’s term has historically been the weakest for stocks is a useful piece of information to file away.
Marc Lichtenfeld
But don’t just file it away – act on it! If you’ve been sitting on the sidelines waiting for the right moment to put your money to work, the time is now. Load up on high-quality stocks while they’re still cheap, before the market catches on to the presidential cycle anomaly.
And if you’re already fully invested? Then it’s time to review your portfolio and make sure you’re well-positioned for the potential turbulence ahead. Consider taking some profits off the table in your biggest winners, and reallocating that capital to more defensive sectors or asset classes.
The bottom line is this: the presidential cycle is a powerful force in the stock market, and ignoring it is a surefire way to miss out on big gains (or worse, suffer unnecessary losses). So take a page from Lichtenfeld’s playbook and use this anomaly to your advantage. Your future self (and your brokerage account) will thank you.
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Stay smart and stay profitable,
The Market Monitor Team
