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The presidential election and st


									The presidential election and stock market performance
How will the recent election results affect your portfolio?
The only sure answer is: there is no sure answer.

The cycle theory
One adage of stock-watchers holds that an NFC team
winning the Super Bowl often points to a bullish year
ahead. No reasonable explanation exists for why this is
the case, other than odd coincidence.
Another, the Presidential Election Cycle Theory, says
that you can count on a weak market in the first two
years of an administration and a stronger market in              elected president’s proposals: unforeseen circumstances
the last two. This is a bit more logical than the Super          may scale back major initiatives or refocus priorities;
Bowl theory. After all, it’s in a president’s political          prior commitments made by an outgoing administration
interest to make tough economic decisions early in               can hamstring an incoming one; and Congress,
an administration. If economic pain must be felt,                which controls government spending, may have a
it might be alleviated by the next election, helping             different agenda.
ensure that voters have full wallets and overflowing             Of course, the biggest monkey wrench thrown into the
401(k) plans when they go to the polls. And in fact,             incoming administration’s plans is the global financial
throughout much of the 20th century, the stock market            crisis that has panicked world markets for months.
generally performed better in the years leading up to a          Former Federal Reserve Chairman Alan Greenspan
presidential election.                                           described current economic pressures — specifically
This theory, in addition to being a very cynical view of         the turmoil in the credit markets — as “a once-in-a-
American leadership, has too many holes to be used as            century” event.1
a hard-and-fast rule for successful investing. Presidential
elections occur only every four years, so there’s not an         Can a new president affect the market?
extensive amount of data to make comparisons. Also,              The immediate effect a new president can have on the
the numbers don’t work for every administration, and             stock market is limited. Long-term, sustained growth
the actions of other institutions, such as the Federal           of your portfolio may result only from a fundamental
Reserve, likely play a greater role in moving the market.        strengthening of the economy.

Perhaps the strongest argument against using the cycle           Perhaps the greatest weapon the new president has to
theory for investment advice is the market’s performance         stabilize the markets, at least in the short term, is his
in 2008 — a year that theoretically should have produced         access to a national audience eager for reassurance.
strong returns. Putting it very mildly, this was not the case.   “The first and foremost thing he has is the ability
                                                                 to promote confidence, and that’s an absolutely
New policies. New opportunities?                                 essential ingredient … of stabilizing the economy and
It seems to make sense that a victory by a presidential          making people more hopeful about the country,” says
candidate who promotes alternative energy, for                   presidential historian Robert Dallek. “That’s very much
example, should benefit companies working in that                the president’s job.”2
industry. However, many factors can affect a newly               1
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