Table of Contents
The Presidential Election Cycle Theory suggests that the stock market follows a pattern that correlates with a U.S. president’s four-year term. The first two years of a term tend to be the weakest for stocks, according to the theory, as the president focuses on fulfilling campaign promises, but the market improves in the latter half of a term as the president pumps up the economy ahead of a new election.
Some historical stock market data does tend to sync up with the Presidential Election Cycle Theory, but past performance is not indicative of future results. And many market researchers and investors tend to be doubtful of the strategy, chalking it up to statistical coincidence as opposed to a real sign of a U.S. president’s power over the market. They argue that company earnings, global economic data, and Federal Reserve monetary policy tend to be bigger influences on stock prices.
Key Points
• The Presidential Election Cycle Theory suggests stock market returns follow a four-year pattern, with weaker performance in the first two years and stronger returns in the latter half.
• Historical data from Yale Hirsch’s Stock Trader’s Almanac shows average returns of 3% in post-election years, 4% in midterm years, 10.2% in pre-election years, and 6% in election years.
• The third year of a presidential term has historically been the strongest, with the Dow and S&P 500 averaging 15% gains between 1943 and 2020, driven by incumbent economic stimulus measures.
• Many market researchers argue the theory reflects statistical coincidence rather than presidential influence, as corporate earnings, global economic data, and Federal Reserve policy are bigger drivers of stock prices.
• Portfolio diversification remains an important strategy for investors regardless of election cycles, as annual returns don’t capture intra-year volatility or the unpredictable impact of global events.
The 4-Year Presidential Cycle Stock Market Theory
Yale Hirsch’s Stock Trader’s Almanac analyzes market data dating back to 1833 in order to study the Presidential Election Cycle Theory. Below are the average stock market percentage gains in the four calendar years after a presidential election, according to the almanac’s 2025 edition.
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The 4-Year Presidential Cycle Stock Market Chart
Hirsch used the Dow Jones Industrial Average to track stock market performance after 1896 and other stock gauges for the years prior:
• Postelection year: 3%
• Midterm year: 4%
• Pre-election year: 10.2%
• Election year: 6%
In a Wall Street Journal interview in November 2019, however, Jeffrey Hirsch, the son of Yale Hirsch, said that not all the historical data is relevant. Market observers have argued that going further back in history, U.S. presidents had even less sway over the stock market than in current times.
Year 1: Post-Election Year
As noted, the first year after a presidential election has, historically, offered investors meager returns of around 3%.
Year 2: Midterm Election Year
During the second year following a presidential election — a year during which midterm elections are held – the market has returned an average of 4%.
Year 3: Pre-election Year
During year three, immediately following midterm elections, the markets tend to take off, returning more than 10%, according to Hirsch’s data. Further, according to Hirsch, the theory that the stock market is strongest in the third year of a presidential term has held up.
The almanac states that between 1943 and 2020, in the third year of the presidential election cycle, both the Dow and S&P 500 have been up 15% on average. Meanwhile, since 1971, the Nasdaq indices have climbed 28.8% on average in the third year.
Year 4: Election Year
The final year of a presidential administration, the subsequent election year, has historically returned 6%. But again: there’s no guarantee that the markets will perform the same way going forward.
Also, there are other points in the Presidential Election Cycle Theory to keep in mind:
• Wars, recessions, and bear markets tend to occur in first two years; prosperity and bull markets in the second two years
• The market performed better in election years when a sitting president was running. Since 1949, the Dow climbed 10.1% during election years when the incumbent is up for reelection vs. 5.3% in all election years and 1.6% in years with an open field.
• Times when the stock market rose between August and October in a presidential election year, the incumbent political party has retained power 85% of the time since 1936.
• Markets tend to be stronger when the incumbent party in power wins.
Does History Support the Stock Market Presidential Cycle?
The Presidential Election Cycle Theory hasn’t held up well in recent presidential administrations. It may be difficult to really get a sense of its accuracy during President Joe Biden’s administration (2021-2025), as the world economy and markets were still reeling from the COVID pandemic. With that in mind, it may be more helpful to look at pre-pandemic data.
For example, The S&P 500 posted a strong gain of 19% in 2017, the first year of President Donald Trump’s term. The market also surged 29% in 2019, Trump’s third year and the best annual performance of his administration.
In each of President Barack Obama’s two terms (2009 and 2013), the first year saw the best annual performance, with the S&P 500 rallying 23% in 2009 and 30% in 2013.
Separately, the stock market has tended to rise more than fall, making the case that charting patterns with the election cycle may have more to do with coincidence. Since 1833, equity prices have risen in 115 calendar years and fallen in 70, data from the Stock Trader’s Almanac shows.
Market Trends in the Current Presidential Cycle
The last presidential election was in November 2024, and the 2026 midterm elections will occur in November. The latest four-year presidential term (Trump’s second, non-consecutive term) started on January 20, 2025.
It’s been difficult to make sense of the markets, the economy, and the political space in recent years, as they have been seemingly disconnected. For example, as of May 2026, the stock markets are at or near record-highs (far from falling into a bear market), while consumer sentiment is at record lows, along with some mixed economic indicators.
You can also add in the disruption that technology – namely, AI – is throwing into the mix. While the markets remain bullish in mid 2026, there’s no telling for sure how how the midterm elections will influence the stock market.
What the 4-Year Cycle Means for Your Portfolio
The history of U.S. presidential elections may not be a big enough sample set for making investment decisions, or change how you invest online.
An array of factors beyond presidential election cycles influences share prices. Investors typically monitor company earnings, global and U.S. economic data, events like natural disasters and pandemics, and Federal Reserve monetary policy. Separately, periods of uncertainty — whether in monetary or fiscal policy — can also shape market performance. In effect, the unpredictability of the markets during election years may cement the importance of portfolio diversification, which may prove a helpful strategy to some investors.
With that in mind, it may be helpful to read up on the differences between ETFs and index funds, which may play a part in an election-year investment strategy.
Annual returns also don’t capture the stock volatility that could have happened during the year. For instance, the stock market rallied in 2020, but it also entered into a bear market, a drop of 20% or more, in the first half amid investor worries over the COVID-19 pandemic’s impact on the global economy.
The Takeaway
The Presidential Election Cycle Theory states that the stock market’s performance improves in the four-year terms of US presidents as they gear up for reelection. Some investors say, however, that other factors, like corporate earnings and central bank policy, are bigger influences on share prices.
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FAQ
What is the average stock market return during an election year?
Historically, the stock market has risen during years with a presidential election. On average, the S&P 500 has gained 6.8% during those years.
Which year of the presidential cycle is best for stocks?
Historically, the third year following a presidential election has resulted in the strongest gains or returns for investors and the stock market, but it’s important to note that there’s no guarantee of that pattern holding in the future.
Should I change my investment strategy during an election year?
You may consider changing your investment strategy during an election year, but there are many what-ifs and hypotheticals to consider, and many potential policies may never come to pass. Considering sticking with your pre-existing, long-term strategy, accordingly, is often recommended over attempting to time the market, which is difficult to do.
How do midterms affect the stock market presidential cycle?
It’s often difficult to predict what the markets will do or how they’ll behave during midterm election years, but historically, those years have coincided with lower market returns.
Is the 4-year presidential cycle theory always accurate?
While it’s possible that the markets could follow historical trends that help shape the 4-year presidential cycle theory, the markets do not always deliver the same results, and there’s no guarantee that they will in the future.
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