To the old adage “don’t fight the Fed” we should add “don’t fight the U.S. election cycle”. Consider the following chart, courtesy of the estimable Jeremy Grantham of Grantham Mayo:
Fascinating, non? Historically speaking, the excess returns on the S&P 500 compared to long-run averages have come entirely in the third year of presidential cycles. In other words, last year’s outperformance was no outlier. It does augur a fairly flat year for this year, of course.