What is the United States presidential election cycle?

This is a theory that the US stock market is at its weakest in a 4-year presidential cycle in the president's first year of office. It suggests that the election negatively impacts on the economy and market sentiment regardless of the president’s policies.

Where have you heard about the United States presidential election cycle?

The theory was first developed by stock market historian Yale Hirsch, but it doesn’t always ring true. For example, the stock market performed much stronger in the first two years of Barack Obama's first term than his third year. And it’s hit a record high in the first year of Donald Trump’s presidency.

What you need to know about the United States presidential election cycle.

The idea has more credence if you look back to the last century. In 1937, which was Franklin D Roosevelt's first year in office of his second term, the stock market fell by over 27%. Truman and Eisenhower also began with a negative year.

While you can attribute some of the overall stock market returns to political upheaval, much of the relationship between the president's actions and share prices is coincidental. Although legislation passed in Congress does have an impact on company revenue, it’s only one of many factors influencing economic conditions.