Presidential Cycles and Stock Returns

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.

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