Election Year Pattern
Yale Hirsch, editor of Stock Trader's Almanac (www.stocktradersalmanac.com), has compiled statistics on the four-year election cycle and broken it down into the characteristics that have occurred each year for the period that a president is in office. Since 1832, the market has risen a total of 557% during the last two years of each administration and only 81% during the first two years. This amounts to an average of 13.6% per year for each of the last two years of an administration and only 2% for each of the first two years. Indeed, since 1965, none of the 13 major lows occurred in the fourth year of a presidency, and more than half (9) occurred in the second year. Hirsch's presumption is that the incumbent party wishes to appear in a favorable light during the last two years, and especially in the last year of an administration, in order to be re-elected. To do this, aside from providing the normal "spin" about their accomplishments, they force interest rates lower and stimulate the economy. At least, history shows that interest rates are inversely correlated with the stock market during those latter two years. How the administration in power can force them lower is subject to conjecture.
Source: Kirkpatrick, Charles and Dahlquist, Julie. Technical Analysis: The Complete resource for Financial Market Technicians; (c) 2007.