As an election year, one topic that continues to crop up with investors is the theory of the presidential election cycle. The theory is that stock market performance in the third year of a presidential term is by far and away the strongest of the four-year presidential term. The next strongest is the fourth year, with the first two showing tangibly weaker returns. The election cycle has been one of those anomalies that continues to pour cold water over the efficiency of markets, despite the fact that it's been relatively well-known for decades now. In this week's Economics Weekly, we revisit the cycle, looking at what's happened during the Trump years relative to history, what we might look forward to in year four (2020), and what might happen if President Trump is elected for a second term in office.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.