The third year of the Presidential Cycle has historically been the equity market’s best year in terms of performance, but with a gain of less than 3% YTD, 2015 has gotten off to a slow start. In fact, this year’s returns are the weakest for the third year of an election cycle in nearly 70 years (1947). The table to the right is from this past week’s Bespoke Report and it lists the S&P 500’s YTD returns in the third year of each Presidential Election Cycle since 1931. As shown, this year’s performance ranks as the fifth worst out of 22 occurrences. So, does this mean that the tailwind from the year three election cycle is not going to blow this year? Not necessarily.
If we divide the list to the right by years where the S&P 500 was up more than 5% and up less than 5% YTD, the average and median returns of the S&P 500 for the rest of the year are actually better in the years where the S&P 500 got off to a slow start. For example, in the seven prior years where the S&P 500 was up less than 5% through 5/8, the index averaged a gain of 6.0% (median: +8.8%) for the remainder of the year. That compares to an average rest of year gain of just 3.2% (median: 1.4%) for years where the S&P 500 was up more than 5% through 5/8. So there’s still hope.