How a Presidential Election is Expected to Impact the Stock Markets

There are lots of theories about what affects the stock market and people are always looking for things that they can take advantage of to make them money. One of the most widely known is that during presidential election years the stock market is stronger than it is in other years. This has historically been true but it is not always the case, it is also not at all clear why this happens.

The impact that a presidential election has on the stock market has historically been that the market is strongest during the election years. There is actually a full cycle at play here with the market tending to be weakest during the first year of the president's term and then getting stronger until it peaks during the election year. This is a well known pattern and most investment websites will talk about it, usually with a Presidential Infographic to make the pattern clear. They also usually offer advice on how you can use this information to make money from the stock market.

One thing that is not clear is just why the market tends to be stronger during election years. The reason that is most usually given is that during election years the administration wants the economy to be as strong as it possibly can be to help their re-election chances or that of their party if they are leaving office. Therefore the government will increase spending in order to stimulate the economy. This does tend to fly in the face of the argument that government spending actually hurts the economy so it is really hard to say if this is what is driving it or not.

Probably the best argument for why the economy is strongest during election years is that people expect that it will be. The stock market is largely an expression of what people believe the economy will do, if people believe that it will be strong during an election year then it probably will be. When enough people recognize a pattern and try to take advantage of it usually it becomes a self fulfilling prophecy. This is the same reason that people are often successful with technical trading, they look for patterns in the charts, if enough people see them then the expected result will happen.

Ultimately it really doesn't matter why the stock market is so strong during election years, what matters is that the pattern exists and that investors can take advantage of it. That being said the stock market does have a way of biting you just when you think that you have it figured out. After years of being up in almost every election year it was down heavily during the last election year. So you do have to be careful and do your homework before you invest.