Don't Bet on Election Gains

As investor we try to look for trends and take advantage of them weather they are up or down.  Since it is an election year this only adds to the excitement if you will.  You will see all types of statistics about returns in a presidential year, presidential cycles, or if a republican takes over for a democrat (I've posted a few below from Don't Bet on Election Gains in the WSJ.


Bottom line, it looks like Romney will be the republican nominee and it is way to early to tell who may come out on top in November.  So in the meantime we can develop scenarios and strategies for either candidate and be ready for the outcome.  However we'll be looking for early signs in order to be ahead of the game.

• Since 1926, the Standard & Poor's 500-stock index has returned 11% during an election year, the second-best year of the four-year election cycle, according to Credit Suisse research.
• Historically, the market has performed best during year three of the election cycle, when the S&P 500 has averaged returns of 17.5%. That's followed by the election year's 11% gain, which trumps years one and two by 2.4 percentage points and 1.4 point, respectively.
• The two possible results this time—a Democrat stays in office or a Democrat hands off to a Republican—have produced mid-double-digit returns during past election years, according to Credit Suisse.
• This cycle, however, hasn't followed the historical pattern. The first and second years of President Obama's presidency stand a good chance of being the best, not the worst: The S&P 500 gained 26.5% in 2009 and 15.1% in 2010, well above the average first- and second-year returns of 8.6% and 9.6%. Meanwhile, 2011, the third year of President Obama's term, should have been the best of the cycle—yet the S&P 500 gained just 2.1% counting dividends, and was essentially unchanged without dividends.
• No matter who wins in 2012, investors should expect a volatile year in the markets, says Barry Knapp, head of U.S. equity strategy at Barclays. He looked at past elections that occurred soon after recessions or periods of economic turbulence. His finding: Market volatility rises during the primary season, falls and then nearly doubles during the 12 weeks leading up to the election, as the outcome becomes its central preoccupation.
• David Rosenberg, chief economist and strategist at investment firm Gluskin Sheff & Associates in Toronto, recommends investments that typically do well in periods of volatility, including "hybrid funds" that blend corporate bonds and dividend-paying stocks, and top-rated "junk" bonds—which are already priced for a recession, he says.