Alpha Power Investing NewsletterNovember 1, 2017
The "Power Zone" Across the Election Cycle
As we move back into the annual "Power Zone" that extends from November 1 through May 31, we want to take a look at this period within the context of the full four-year presidential election cycle. As we define it, the four-year "election cycle" extends from January 1 of the year after a U.S. Presidential election year through December 31 of the next U.S. Presidential election year. The latest such cycle began on January 1, 2017 and extends through December 31, 2020.
For our analysis we will consider four different periods:
Period 1 - November 1st of Post-Election year through May 31st of Mid-Term Election year
Period 2 - November 1st of Mid-Term Election year through May 31st of Pre-Election year
Period 3 - November 1st of Pre-Election year through May 31st of Election year
Period 4 - November 1st of Election year through May 31st of Post-Election year
Our test starts in the Post-Election year of 1981 and encompasses nine completed election cycles ending in 2016. The results displayed are generated using monthly total return data for the S&P MidCap 400 Index obtained using the PEP database from Callan Associates.
Figure 1 displays the "Power Zone" results for each of the four periods listed above.
Figure 2 summarizes the results displayed in Figure 1 for each of the four election cycle periods.
As you can see in Figure 2, the performance of the S&P MidCap 400 Index has been extremely favorable during the Power Zone periods. Both Period 2 and Period 4 have seen gains nine times and losses 0 times. Periods 1 and 3 have both witnessed two losing periods. As you can see in the row labeled "Average % Gain/Loss" all four periods have showed a gain on average and all except Period 3 has showed an average gain of +11.6% or more.
While it is enjoyable to focus on the positive side, in regards to achieving long-term success it is essential to also be aware of - and prepared to deal with - the potential risks. The largest Power Zone loss to date was -9.3% during the 1983-1984 period. It should also be noted that between 10/31/2008 and 3/9/2009, the MidCap Index suffered a peak-to-valley price decline of -29%. Also, between 10/31/2015 and 2/11/2016 the MidCap Index suffered a peak-to-valley price decline of -14%. For the record, within the Alpha Mid-Cap Power Index strategy these declines were partially to mostly mitigated by gains during the 20 "Power Period" days during the fourth quarter of 2008 and 2015. In addition, in both the 2008-2009 and 2015-2016 cases, the S&P MidCap 400 Index managed to rally back into positive territory over the course of the full Power Zone period.
In sum, investors have historically been rewarded for holding the S&P 400 MidCap Index during the end of October to the end of May Power Zone period. However, investors should never assume that this is a "sure thing". They should also be aware that uncomfortable declines can occur along the way. The proper response in these instances is to remain focused on the long-term consistency of the seasonal trends utilized by the various Alpha strategies and to remain disciplined, as that is the key to long-term investment success.
To read more about Alpha's strategies, please go to the Strategies and Performance page of our website at www.alphaim.net to read the brochures and view the actual performance results.
Disclosures: Past performance is not a guarantee of future performance. Indexes are not investment vehicles. The returns illustrated above are not returns of any Alpha strategy and do not include management fees or the cost of funds, trading, or other expenses. To see the impact of these costs, please refer to the net of fees and expenses performance data for specific Alpha strategies. The illustrations above are designed to quantify the effect of certain time periods on a representative market index. The data used to construct the illustrations were obtained from third-party sources. While Alpha believes the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.
Alpha Investment Management, Inc. is a SEC registered investment advisor. Such registration does not imply a certain skill or training and no inference to the contrary should be made. The information and opinions expressed in this document are for informational purposes only. Any recommendation or opinion made in this document may not be suitable for all investors. The information contained herein does not constitute and should not be construed as investment advice, an offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
© 2017 Alpha Investment Management, Inc.