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by David Templeton, Horan Capital Advisors
In spite of the strong market advance from its low in mid November, post election year markets have experienced their largest decline from the market’s prior year close. In a recent report by Standard and Poor’s, they note,
“Since 1900, the S&P 500 recorded its deepest median YTD decline during the first year of the four-year presidential cycle at -12% versus declines of 11%, 3% and 4% for years 2, 3, and 4, respectively.”
Source: Standard & Poor’s
Investor sentiment seems to have improved since Congress resolved the fiscal cliff over hang on the market at year end. Next up will be the issue of sequestration in early March. Coincidentally, in a post election year, the market tends to experience its weakest performance in the first quarter.
In a report from Chart of the Day from a few years ago, it was noted,
“Since 1900, the stock market has tended to underperform from early January to late February and again from early August to early November during the average post-election year. Some parts of the year have, on average, outperformed. The most notable period of outperformance has occurred from late March to late May. In the end, however, the stock market has tended to underperform during the entirety of the post-election year. One theory to support this behavior is that the party in power will tend to make the more difficult economic decisions in the early years of a presidential cycle and then do everything within its power to stimulate the economy during the latter years in order to increase the odds of re-election.”
Source: Chart of the Day
Equity valuations do look attractive at this point in time; however, Q4 earnings reports have only shown low single digit increases to date. The market’s future direction will likely depend on the outlook companies provide for the balance of the year.
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Tags: Economy, Outlook, US Economy
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