I have always wondered how the Presidential Cycle plays out in the 2nd term of a
Presidency; Unfortunately, there are not enough post-war 2 termers
around — Eisenhower, Reagan, and Clinton — to draw any firm
conclusions as to how this year’s cycle may unfold this year.
Regardless, this is an informative chart from Birinyi Associates:
Average S&P 500 Performance During Year Two of a Presidential Term: 1962 – 2006
click for larger chart
Source: Birinyi Associates, Inc.
We’ve discussed this phenomena many times in the past; Note the big failure year for the cycle was 1986, with the correction low postponed to 1987.
Birinyi Associates observes:
As the table [below] details, there is some truth to this theory as the second year has been the worst of the four-year cycle in over half of the 11 full cycles since 1962, and it is the only one with an average negative return. We also plotted the YTD performance of the S&P 500 this year vs. the average second year return since 1962. As the chart (above) shows, there is a good degree of similarity between the patterns of this year vs. prior years.
UPDATE June 28, 2006 5:58am
Some skepticism about the 4 year cycle leads me to show these additional charts and table. Note that the 2nd year low presents an unusually good buying opportunity:
Table: 1919 – 1998
This chart runs from 1950 to 1998; I find it rather persuasive:
I first posted the original larger version here.