The Presidential Cycle is made up of 4 years beginning with the year the president is inaugrated. The material presented here is structured to help to identify some of the characteristics and/or dynamics of that 4 year cycle in the stock market.
I identify the cycle as the Presidential Cycle because I believe it is politically motivated. Prior to 1933 gold and silver were the medium of exchange and government had little control over money supply. Gold coins were removed from circulation by executive order in 1933 and redeemability was suspended. Shortly after the confiscation of gold, the currency was devalued to $35 an ounce from $20 (a 40% tax). US citizens could not redeem their gold certificates for gold, but foreigners could so in 1971 Nixon closed the gold window eliminating redeemability entirely and removing any intrinsic value from the currency. With control of the currency politicians are able to manipulate the economy to their advantage. Assuming this hypothesis is correct, it is not surprising the Presidential Cycle has become defined over the past 70 years.
The tables have 5 columns:
Period = The first and last years of the cycle. Click on the date in the period column to see a graph of the period.
Total return = The total change on a percentage basis of the index over the 4 year period
CAR = Compound Annual return = The total 4 year return on an annualized basis.
MDD = Maximum Draw Down = The greatest total decline during the 4 year period.
MDD date = The date of the MDD, the last digit in the sequence is the year position of the date in cycle.
The first table is data for the Dow Jones Industrial Average (DJIA) from 1885 - 2005. All of the figures are for the 4 year period. Click on the period for a graph.
| Period | Total return | CAR | MDD | MDD date | President |
| 1885 - 1888 | 28.40% | 5.55% | 20.13% | 4/2/1888 - 4 | Grover Cleveland - D |
| 1889 - 1892 | 1.33% | 0.28% | 22.57% | 12/8/1890 - 2 | Benjamin Harrison - R |
| 1893 - 1896 | -13.64% | -2.70% | 41.06% | 8/8/1896 - 2 | Grover Cleveland - D |
| 1897 - 1900 | 74.82% | 12.54% | 31.75% | 9/24/1900 - 4 | William McKinley - R |
| 1901 - 1904 | -1.56% | -0.33% | 46.15% | 11/9/1903 - 4 | T Roosevelt - D |
| 1905 - 1908 | 23.77% | 4.57% | 48.54% | 11/15/1907 - 3 | T Roosevelt - D |
| 1909 - 1912 | 2.00% | 0.42% | 27.44% | 9/25/1911 - 3 | William Taft - R |
| 1913 - 1916 | 47.58% | 9.44% | 19.36% | 7/30/1914 - 2 | Woodrow Wilson - D |
| 1917 - 1920 | -24.26% | -4.74% | 44.20% | 12/21/1920 - 4 | Woodrow Wilson -D |
| 1921 - 1924 | 67.49% | 11.49% | 20.15% | 8/24/1921 - 1 | Warren Harding - R |
| 1925 - 1928 | 148.94% | 21.28% | 16.70% | 3/30/1926 - 2 | Calvin Coolidge - R |
| 1929 - 1932 | -80.02% | -13.30% | 89.19% | 7/8/1932 - 4 | Herbert Hoover - R |
| 1933 - 1936 | 200.18% | 26.38% | 23.03% | 10/31/1933 - 1 | FDR -D |
| 1937 - 1940 | -27.11% | -5.18% | 48.10% | 3/31/1938 - 2 | FDR - D |
| 1941 - 1944 | 16.16% | 3.21% | 30.44% | 4/28/1942 - 2 | FDR - D |
| 1945 - 1948 | 16.40% | 3.45% | 23.24% | 10/9/1946 - 2 | FDR - Truman - D |
| 1949 - 1952 | 64.64% | 11.95% | 13.54% | 7/13/1950 - 2 | Harry Truman - D |
| 1953 - 1956 | 71.11% | 14.46% | 13.04% | 9/14/1953 - 1 | Dwight Eisenhower - R |
| 1957 - 1960 | 23.31% | 5.39% | 19.39% | 10/22/1957 -1 | Dwight Eisenhower - R |
| 1961 - 1964 | 41.93% | 9.21% | 27.10% | 6/26/1962 - 2 | Kennedy - Johnson - D |
| 1965 - 1968 | 7.96% | 2.00% | 25.21% | 10/7/1966 - 2 | Lyndon Johnson - D |
| 1969 - 1972 | 8.08% | 1.97% | 34.85% | 5/26/1970 - 2 | Richard Nixon - R |
| 1973 - 1976 | -1.51% | -0.37% | 45.08% | 12/6/1974 - 2 | Nixon - Ford - R |
| 1977 - 1980 | -4.05% | -1.00% | 26.13% | 2/28/1978 - 2 | Jimmy Carter - D |
| 1981 - 1984 | 25.68% | 5.88% | 24.13% | 8/12/1982 - 2 | Ronald Reagan - R |
| 1985 - 1988 | 78.99% | 15.68% | 36.13% | 10/19/1987 - 3 | Ronald Reagan - R |
| 1989 - 1992 | 52.33% | 11.08% | 21.16% | 10/11/1990 - 2 | George HW Bush - R |
| 1993 - 1996 | 95.34% | 18.24% | 9.68% | 4/4/1994 - 2 | William Clinton - D |
| 1997 - 2000 | 67.28% | 13.77% | 19.26% | 8/31/1998 - 2 | William Clinton - D |
| 2001 - 2004 | -0.04% | -0.01% | 35.74% | 10/9/2002 - 2 | George W Bush - R |
| Averages | 33.72 | 6.02 | 30.08 |
Click here for a page showing all of the DJIA charts stacked on a single page.
It is interesting that the MDD has occurred during the 2nd year of the cycle all but three times since 1933. Two of the three occurrences were during the Eisenhower administration and the 3rd during the 2nd year of the Reagan administration when the crash of 1987 (the 3rd year of his 2nd term) exceeded all declines in 1986.
George W. Bush, FDR and Theodore Roosevelt are the only presidents that have been re-elected after a decline over their terms.
The next table shows data for the S&P 500 (SPX) from 1929 - 2004.
| Period | Total return | CAR | MDD | MDD date |
| 1929 - 1932 | -71.70% | -12.17% | 86.22% | 6/1/1932 - 4 |
| 1933 - 1936 | 149.35% | 21.48% | 33.93% | 3/14/1935 - 3 |
| 1937 - 1940 | -38.42% | -7.08% | 54.50% | 3/31/1938 - 2 |
| 1941 - 1944 | 25.52% | 4.90% | 31.22% | 4/28/1942 - 2 |
| 1945 - 1948 | 14.46% | 3.06% | 28.78% | 5/17/1947 - 3 |
| 1949 - 1952 | 74.80% | 13.48% | 14.02% | 7/17/1950 - 2 |
| 1953 - 1956 | 75.65% | 15.22% | 14.82% | 9/14/1953 - 1 |
| 1957 - 1960 | 24.51% | 5.65% | 20.66% | 10/22/1957 - 1 |
| 1961 - 1964 | 45.84% | 9.96% | 27.97% | 6/26/1962 - 2 |
| 1965 - 1968 | 22.55% | 5.38% | 22.18% | 10/7/1966 - 2 |
| 1969 - 1972 | 13.66% | 3.27% | 34.73% | 5/26/1970 - 2 |
| 1973 - 1976 | -8.97% | -2.17% | 48.20% | 10/3/1974 - 2 |
| 1977 - 1980 | 26.34% | 6.03% | 19.13% | 3/6/1978 - 2 |
| 1981 - 1984 | 23.19% | 5.35% | 25.85% | 8/12/1982 - 2 |
| 1985 - 1988 | 66.06% | 13.53% | 33.51% | 12/4/1987 - 3 |
| 1989 - 1992 | 56.89% | 11.92% | 19.92% | 10/11/1990 - 2 |
| 1993 - 1996 | 70.01% | 14.20% | 8.94% | 4/4/1994 - 2 |
| 1997 - 2000 | 78.24% | 15.59% | 19.31% | 8/31/1998 - 2 |
| 2001 - 2004 | -8.21% | -2.01% | 43.46% | 10/9/2002 - 2 |
| Averages | 33.67% | 6.61% | 30.91% |
Click here for a page showing all of the SPX charts stacked on a single page.
Since 1960 the MDD for the cycle has occurred in year 2 with the single exception of 1987.
The next table shows data for the NASDAQ composite (OTC) from 1965 - 2004.
| Period | Total return | CAR | MDD | MDD date |
| 1965 - 1968 | 137.97% | 25.06% | 20.79% | 10/10/1966 - 2 |
| 1969 - 1972 | 28.07% | 6.41% | 38.22% | 5/27/1970 - 2 |
| 1973 - 1976 | -26.81% | -6.12% | 59.90% | 10/3/1974 - 2 |
| 1977 - 1980 | 106.38% | 19.90% | 24.91% | 3/27/1980 - 4 |
| 1981 - 1984 | 22.45% | 5.19% | 31.50% | 7/25/1984 - 4 |
| 1985 - 1988 | 54.19% | 11.44% | 35.89% | 10/28/1987 - 3 |
| 1989 - 1992 | 77.50% | 15.42% | 33.00% | 10/16/1990 - 2 |
| 1993 - 1996 | 90.71% | 17.53% | 16.55% | 7/24/1996 - 4 |
| 1997 - 2000 | 91.36% | 17.67% | 53.79% | 12/20/2000 - 4 |
| 2001 - 2004 | -11.94% | -2.88% | 61.03% | 10/9/2002 - 2 |
| Averages | 56.99% | 10.96% | 37.57% |
Click here for a page showing all of the OTC charts stacked on a single page.
Five (50%) of the OTC MDDs occurred in year 2 and four (40%) occurred in year 4. Two of the year 4 MDDs in July and just 1 day apart (1984 and 1996).
The next table shows data for the Russell 2000 (R2K) from 1981 - 2004.
| Period | Total return | CAR | MDD | MDD date |
| 1981 - 1984 | 35.71% | 7.93% | 29.16% | 8/12/1982 - 2 |
| 1985 - 1988 | 45.81% | 9.90% | 39.08% | 10/28/1987 - 3 |
| 1989 - 1992 | 49.98% | 10.66% | 34.27% | 10/30/1990 - 2 |
| 1993 - 1996 | 64.07% | 13.19% | 15.59% | 7/24/1996 - 4 |
| 1997 - 2000 | 33.35% | 7.48% | 36.86% | 10/8/1998 - 2 |
| 2001 - 2004 | 34.75% | 7.81% | 37.46% | 10/9/2002 - 2 |
| Averages | 43.95% | 9.50% | 32.07% |
Click here for a page showing all of the R2K charts stacked on a single page.
Click here for a closer look at Presidential Year 1.
Click here for a closer look at Presidential Year 2.
Click here for a closer look at Presidential Year 3.
Click here for a closer look at Presidential Year 4.
| DJIA | SPX | OTC | R2K | Percentage of the years the index was up for the year | |
| Year 1 | 3.26% | 3.70% | 4.77% | 11.69% | DJIA 45%, SPX 55%, OTC 64%, R2K 86% |
| Year 2 | -0.55% | 0.91% | -2.57% | -4.17% | DJIA 45% , SPX 55%,OTC 40%, R2K 33% |
| Year 3 | 18.88% | 19.93% | 38.65% | 25.15% | DJIA 100%, SPX 100%, OTC 90%, R2K 83% |
| Year 4 | 9.22% | 10.78% | 12.02% | 12.89% | DJIA 82%, SPX 90%, OTC 82%, R2K 71% |
The next table is similar to the previous one except all averages are calculated from 1980.
| DJIA | SPX | OTC | R2K | Percentage of years the index was up for the year | |
| Year 1 | 10.77% | 10.26% | 9.15% | 11.69% | DJIA 57%, SPX 71%, OTC 71%, R2K 86% |
| Year 2 | 6.55% | 4.10% | 2.22% | -4.17% | DJIA 66%, SPX 50%, OTC 50%, R2K 33% |
| Year 3 | 21.14% | 20.94% | 41.16% | 25.15% | DJIA 100%, SPX 100%, OTC 83%, R2K 83% |
| Year 4 | 7.17% | 9.02% | 6.47% | 12.89% | DJIA 71%, SPX 86%, OTC 71%, 71% |
The next group of links are to tables showing monthly and yearly perfromance for the index along with 5 period (20 year) monthly performance summaries and overall performance summaries including the percentage of time the month has been up. There is also a breakdown by Presidential Year with summaries.
Overall the best month for the DJIA is December, up 70% of the time with an average gain of 1.1%. The worst month is September up 44% of the time with an average loss of 1.1%.Breaking it down by Presidential Year the best month is December of year 3, up 80% of the time with an average gain of 1.4%. The best month measured by average gain is August of year 4, up 73% of the time with an average gain of 2.4%. The worst month, by both percentage of up months and average loss, is September of year 2 up 41% of the time with an average loss of 1.9%.
Overall the best month for the SPX is also December up 74% of the time with an average gain of 1.4%, January has also had an average gain of 1.4%, but has only been up 70% of the time.
Breaking it down by Presidential Year the best month is December of year 3 up 84% of the time with an average gain of 2.3%. The best month measured by average gain is January of year 3, up 74% of the time with an average gain of 3.1%. The worst month is September of year 1, up 30% of the time with an average loss of 2.3%.
Overall the best month for the OTC is April up 70% of the time with an average gain of 1.5%, the highest average gain is January up 67% of the time with an average gain of 3.5%. The worst month is July up 51% of the time and on average flat. Measured by average loss, September is the worst, up 60% of the time with an average loss of 0.3%.
Breaking it down by Presidential Year the best month is March of year 3, up 100% of the time with an average gain of 4.3%. Measured by average gain January of year3 has been up 90% of the time with an average gain of 8.2%. The worst month , measured both by percentage of winners and average loss, is February of year 1, up 27% of the time with an average loss of 3.8%.
Overall the best month for the R2K is December up 70% of the time with an average gain of 2.3%. Measured by average gain, the best month is January, up 61% of the time with an average gain of 2.8%. The worst month for the R2K is July, up 48% of the time with an average loss of 0.6%. October has also had an average loss of 0.6%, but it has been up 60% of the time.
Breaking it down by Presidential Year, the best months are May of year 1 up 100% of the time with an average gain of 4.5% and March of year 3 also up 100% of the time with an average gain of 3.4%. Measured by average return December of year 3 has been up 86% of the time with an average gain of 4.9%. The worst month is July of year 2, up 17% of the time with an average loss of 5.9%. The 1987 crash made October the worst by percentage loss at 6.1% while October of year 3 has been up 43% of the time.