Presidential Cycles

This weeks Barron’s has an interesting chart from Sy Harding. If you are unfamiliar with Harding’s work, have a look at his prescient 1999 book, “Riding the Bear: How to Prosper in the Coming Bear Market.” (Spend the $1.49 on used copy — its well worth it).

Harding suggests that:

“UNLESS I’M LOOKING AT the wrong calendar, stocks are headed for a rough patch next year. That’s because 2006 is the second year of a presidential term, and the market historically hits a significant low in those years.

The trend has been strongest in long-term, or secular, bear markets,
such as the period of 1965 through 1982. But the pattern has been clear through bull and bear periods alike — and through war and peace, rising and falling interest rates, high and low inflation — regardless of which party was in power.”

That’s consistent with our prior discussions of the Presidential Market Cycle (See this:  Mid-term Presidential Election cycle, and this: 4 Year Cycle).

Here’s that chart:

In the past, I wondered if the 2nd year low held up for two term Presidents. Harding assures us it does: ” This has been true even for second-term presidents like George Bush. After all, they want their party to remain in power.”

I found the numerical equivalent of this some years ago, and posted it in the Mid-term Presidential Election cycle:

pres_election_cycle.gif

This is consistent with my prior expectation that my most likely scenario, where the markets top  out in December, and then head south in ’06.

Source:
It’s the Cycle, Stupid!
SY HARDING
Barron’s, Saturday, September 10, 2005

http://online.barrons.com/article/SB112631643546337049.html

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