With less than a month till the 2020 presidential election and the stock market recovering slowly, traders have begun speculating how the upcoming election’s outcome will affect the market. Historically, presidential elections have greatly influenced the stock market, with research showing a president’s first year often delivering the lowest returns. Dr. Clifford Vance Cast of Delta Trading Group is a well-regarded leader in the trading education sector with over 34 years of experience in the financial industry. Dr. Cast holds a Ph.D. in Organization and Management in IT and specializes in Risk Homeostatic Theory. This specialization has been brought by Dr. Cast to the forefront of Delta Trading Group’s education model, giving future traders valuable insight into the stock market. Delta Trading Group Reviews strives to educate its readers on the complexities of the market and the importance of risk assessments during a changing economic landscape.
The theory most often referenced by economists regarding presidential elections and trade is the “Presidential Election Cycle Theory,” first written by Yale Hirsch in the 1967 Stock Trader’s Almanac. Hirsch suggests that the first two years of a president’s term in office are often economically weaker than the following two because a president will often push to fulfill campaign promises after being elected. However, during the second half of a president’s term, presidents frequently will focus on growing the economy to improve their re-election chances. When President Barack Obama and President George W. Bush’s terms as president, neither presidency followed Hirsch’s predictions. During President Obama’s first term as president, the first two years (2009 and 2010) of this term were by far his most economically profitable years, while his third and fourth showed a smaller return. Memorably, President George W. Bush’s presidency was marked by the Great Recession, which began in the third year of his second term.
Although some presidents’ terms do follow Mr. Hirsch’s theory, there are no absolutes when it comes to trading. When investing based on economic theory, it is crucial to recognize the vast amount of variables affecting the market each day and prepare for various changing circumstances. The “Presidential Election Cycle Theory” should be recognized as a basic guide when investing during an election season; however, as this current election demonstrates, many other factors, such as the global pandemic, have caused dramatic changes in the stock market.