The Presidential Cycle Pattern suggests that the stock market tends to follow similar patterns during the same points in prior presidential terms. The Presidential Cycle Pattern is calculated by averaging the S&P 500 performance over 4-year chunks. Variations can include factors like whether the president is a first-term or incumbent.
1st Term Presidential Cycle Pattern November 2024 - January 2026
The chart above compares the stock market performance under new presidents versus incumbents. The green line represents new presidents, while incumbent presidents tend to have a more stable market, especially in the first year of their second term, due to a stronger economy heading into reelection. New presidents often spend their first two years facing crises inherited from their predecessors, which can dampen investor sentiment. Incumbents, by contrast, don’t typically blame the previous administration and tend to have better market conditions in their second term.
There’s also a difference in stock market behavior after an election. When a new party wins, Wall Street initially celebrates, but the enthusiasm often fades when the new president faces the reality of governing, particularly in dealing with Congress. In 2020, the market behaved differently due to massive Fed intervention, with QE4 pumping $1 trillion per month. However, this was reversed in 2022 with quantitative tightening.
1st Term Presidential Cycle Pattern November 2024 - November 2028
By the third year
of a presidential term, stock market trends tend to be positive, with
few exceptions like 1931 and 1939. By the election year, early
performance differences between first and second term presidents are
generally evened out.
Looking ahead to Trump’s presidency, the market may initially react positively to expectations of tax
cuts, deregulation, and government efficiency. However, if his policies
lead to a balanced budget, historically, that could be bearish for the
stock market.
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