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Rhonda, thanks for interesting election cycle study. YOu may find the
associated discussion, and attached graphic to be of interest:
http://csf.colorado.edu/longwaves/2002/msg01571.html
and this study:
URL: http://www.cpcug.org/user/invest/fouryear.html
The Four Year Stock Market Cycle
Copyright C 1995-97 HRConsultants - last update 08/13/97
Since about 1940, the stock market averages have shown a tendency to oscillate
with a period of about four years. From the market low on 04/28/42 to the one
that occurred on 04/04/94, thirteen complete cycles have occurred, with an
average duration of almost exactly 4 years. It is not difficult to define the
cycles from low point to subsequent low point, since many of the lows were made
as v-bottoms. In contrast, the tops tend to be more rounded, making it more
difficult to define the cycles from top to top. Prior to the 1920's, the market
oscillations had a period of about 3 years, with the 20's and 30's being
difficult to fit into either the previous 3-year cycle or the subsequent 4-year
cycle, due to the long bull market bubble of the 20's, the 1929-32 market
crash, and the subsequent violent swings of the 30's. Both the earlier 3-year,
and and the later 4-year stock market cycles appear to be manifestations of the
normal business inventory cycle and the accompanying monetary cycle.
Since World War 2, the US government (that is, the Federal Reserve Board) has
taken an increasingly active role in controlling interest rates and monetary
conditions in an attempt to prevent deflation and to smooth out the business
cycle. The has resulted in a significant increase in the overall rate of
inflation, and has locked the period of the stock market cycle into the 4-year
presidential election cycle. The 4-year market cycle is easily seen in the
following charts, which show the S&P 500 over five time periods: 1941-52,
1953-64, 1965-76, 1977-88, and 1989-97. The bear market lows for each cycle are
identified on these charts, as is the year of the presidential term in which
each low occurs.
To portray the clustering of bear markets early in each presidential term, the
date of the low point of each cycle from 1941 through 1995 is shown on a 4-year
presidential term calendar. This chart shows the magnitude as well as the
timing of each bear market. As may be seen, 3 of the 13 bear market lows
occurred in year 1 of the presidential term, 9 in year two, 1 in year 3, and
none in year 4 (the presidential election year). In addition, daily price
change data for the S&P 500 index since 1942 were averaged for each day, month,
and year of the 4-year cycle, and a composite average of the behavior of the
S&P 500 and the Nasdaq Composite Indexes over the 4-year cycle was obtained.
>From this chart we observe that almost the entire gain throughout the cycle
could be realized by buying on October 1 of Year 2 of the Presidential Cycle
(just before the midterm Congressional elections) and selling on December 31 of
Year 4 of the Presidential Cycle (just after the Presidential election). This
simple timing strategy would miss most of the bear markets over the past 55
years while achieving the same return as a 100% invested strategy.
[...]
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