Customer Service 1 (888) 261-2693
Please enter Search keyword. Advanced Search
Home About Us Resources Archive Free Reports Market Window

The Crazy-Accurate Election Cycle Stock Market Indicator

By Dr. Steve Sjuggerud
Thursday, November 8, 2012

"I've hero-worshipped the presidential cycle," investment legend Jeremy Grantham told Bloomberg Businessweek.
 
Grantham, you may recall, made what I call "The Most Accurate Investment Forecast Ever." (If you don't recall, I urge you to go back and take a look at that story. It's a quick read.) 
 
And the "presidential cycle" – as Grantham calls it – has been a surprisingly accurate predictor of future stock market returns...
 
Grantham told Bloomberg: "Going back to 1932, if you take the first and second year [of a presidential term] together, they've had no real return in the market." 
 
When I first heard of this idea of a presidential cycle for stock market returns, I thought it sounded absolutely ridiculous... But then I crunched the numbers – and it turned out to be way more accurate than I ever imagined. Take a look: 
 
Year 
Return* 
% of losing years 
Year 1 
-0.7% 
50% 
Year 2 
-3.3% 
50% 
Year 3 
26.2% 
5% 
Year 4 
6.9% 
20% 
* Not including dividends 
 
The first two years have no return. Then the numbers get silly...
 
All of the return [from the presidential cycle] has been compressed into a gigantic Year Three [return] and a respectable Year Four [return].
 
It turns out, since 1932, the return during the third year of a presidential term was negative only once... and it was a loss of less than 1%. If you add in dividends, we haven't had a single negative Year Three since 1932! 
 
Grantham starts his number crunching at the end of the third quarter of the election year... So the clock is already ticking on his first-year cycle numbers. According to history, we have a 50/50 shot of having a losing year.  
 
Grantham says: 
 
We have Republicans threatening to add fiscal constraints into a very fragile economy. We have the European situation. We have China stumbling in an incredible slow-motion style. I think it's a really good year to keep your head down [and not expect big returns].
 
So what does Grantham like now? He told Bloomberg: 
 
Great brands of blue chips are not so bad in the U.S. Emerging countries are about fair price. Beaten-down European stocks, particularly the so-called value stocks, are probably a little cheap, although risky. And resource stocks, once they reflect the weak economy – and we'll get another whack-down – will be a wonderful long-term purchase. [For] farmland and forests, which should be the backbone of any long-term, serious portfolio... it will also be a good time to buy in.
 
I don't "hero-worship" the election cycle as Grantham does. With the Bernanke Asset Bubble in place, it's hard for me to believe that stocks will do nothing for the next two years – as the presidential cycle suggests. But I do agree with Grantham's investment picks...  
 
These are the right places to be over the next few years, whether the presidential cycle pans out yet again or not.
 
Good investing, 
 
Steve




Further Reading:

Check out Grantham's most accurate investment forecast ever – and get more great tips from the legend – here...
 
If you'd have put your savings with money manager Jeremy Grantham in 1985, you would have multiplied your money 13 times and beaten 99% of other investors.
 
Grantham believes he always has opportunity somewhere... There is usually something interesting going on in the bubble business.

Market Notes


A WARNING SIGN FOR BOND OWNERS

Most investors haven't noticed yet, but the long uptrend in bond prices is ending… 
 
Over the past two years, bond prices have soared. Falling interest rates since 2008 – plus, no sign of inflation – have created the perfect environment for bonds. But as today's chart shows, the long uptrend is breaking down...
 
After soaring more than 50% in 18 months, the iShares Barclays 20+ Year Treasury Bond Fund (TLT) hasn't been able to hold its July highs. Interest rates are sitting at historic lows. And it's only a matter of time before the government's uncontrollable spending destroys the U.S. dollar and drives up inflation.
 
Jeremy Grantham, the most accurate market forecaster we follow, predicts bonds will end up losing money over the next seven years. Anyone buying TLT today is getting into a low-upside/high-downside investment.
 
– Larsen Kusick
 

premium teaser

34% annualized returns in a rare True Wealth Systems opportunity...
 
This is also one of Grantham's investment picks...
 

In The Daily Crux



Recent Articles
Legal Notices: Stansberry Research LLC (Stansberry Research) is a publishing company and the indicators, strategies, reports, articles and all other features of our products are provided for informational and educational purposes only and should not be construed as personalized investment advice. Our recommendations and analysis are based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.

 

Readers should be aware that trading stocks and all other financial instruments involves risk. Past performance is no guarantee of future results, and we make no representation that any customer will or is likely to achieve similar results.

 

Our testimonials are the words of real subscribers received in real letters, emails, and other feedback who have not been paid for their testimonials. Testimonials are printed under aliases to protect privacy, and edited for length. Their claims have not been independently verified or audited for accuracy. We do not know how much money was risked, what portion of their total portfolio was allocated, or how long they owned the security. We do not claim that the results experienced by such subscribers are typical and you will likely have different results.

 

Any performance results of our recommendations prepared by Stansberry Research are not based on actual trading of securities but are instead based on a hypothetical trading account. Hypothetical performance results have many inherent limitations. Your actual results may vary.

 

Stansberry Research expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. And all Stansberry Research (and affiliated companies), employees, and agents must wait 24 hours after an initial trade recommendation is published on the Internet, or 72 hours after a direct mail publication is sent, before acting on that recommendation.

 

© 2024 Stansberry Research, LLC. | Privacy Policy| Customer Service
Stansberry Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This website may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry Research, LLC. 1125 N Charles St. Suite 500, Baltimore MD 21202.