Best of the Week
Most Popular
1.Canada Real Estate Bubble - Harry_Dent
2.UK House Prices ‘On Brink’ Of Massive 40% Collapse - GoldCore
3.Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - Nadeem_Walayat
4.Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - Marc_Horn
5.5 Maps That Explain The Modern Middle East - GEORGE FRIEDMAN
6.Gold Back With A Vengeance As Bitcoin Bubble Bursts - OilPrice_Com
7.Gold Summer Doldrums - Zeal_LLC
8.Crude Oil Trade & Nasdaq QQQ Update - Plunger
9.Gold And Silver – Why No Rally? Lies, Lies, And More Lies - Michael_Noonan
10.UK Election 2017 Disaster, Fake BrExit Chaos, Forecasting Lessons for Next Time - Nadeem_Walayat
Last 7 days
Saving Illinois: Getting More Bang for Its Bucks - 24th Jul 17
3 Stocks Sectors That Will Win in The Fed’s Great Balance-Sheet Unwind - 24th Jul 17
Activist Investors Are Taking Over Wall Street, Procter and Gamble Might Never Remain the Same - 24th Jul 17
Stock Market Still on Track - 24th Jul 17
Last Chance For US Dollar To Rally - 24th Jul 17
UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - 22nd Jul 17
Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts - 22nd Jul 17
Warning: The Fed Is Preparing to Crash the Financial System Again - 21st Jul 17
Gold / Silver Shorts Extreme - 21st Jul 17
GBP/USD Bearish Factors - 21st Jul 17
Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing - 21st Jul 17
Is It Worth Investing in Palladium? - 21st Jul 17
UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - 21st Jul 17
The Fed May Show Trump No Love - 20th Jul 17
The 3 Best Asset Classes To Brace Your Portfolio For The Next Financial Crisis - 20th Jul 17
Gold Stocks and Bonds - Preparing for THE Bottom - 20th Jul 17
Millennials Can Punt On Bitcoin, Own Safe Haven Gold For Long Term - 20th Jul 17
Trump Has Found A Loophole To Rewrite Trade Agreements Without Anyone’s Permission - 20th Jul 17
Basic Materials and Commodities Analysis and Trend Forecasts - 20th Jul 17
Bitcoin PullBack Is Over (For Now): Cryptocurrencies Gain Nearly A 50% In Last 48 Hours - 19th Jul 17
AAPL's 6% June slide - When Prices Are Falling, TWO Numbers Matter Most - 19th Jul 17
Discover Why A Major American Revolution Is Brewing - 19th Jul 17
iGaming – Stock Prices - 19th Jul 17
The Socionomic Theory of Finance By Robert Prechter - Book Review - 18th Jul 17
Ethereum Versus Bitcoin – Which Cryptocurrency Will Win The War? - 18th Jul 17
Accepting a Society of Government Tyranny - 18th Jul 17
Gold Cheaper Than Buying Greek Villas in 2012 - 18th Jul 17
Why & How to Hedge the Growing Risks of Holding Stocks - 18th Jul 17
Relocation: Everything You Need to do for a Smooth Transition Abroad - 17th Jul 17
A Former Lehman Brothers Trader: It’s Time To Buy Brick And Mortar Retailers - 17th Jul 17
Bank Of England Warns “Bigger Systemic Risk” Now Than 2008 - 17th Jul 17
Bitcoin Price “Deja Vu” Corrective Sequence - 17th Jul 17
Charting New Low in Speculation in Gold and Silver Markets - 17th Jul 17
Bitcoin Crash - Is This The End of Cryptocurrencies? - 17th Jul 17
The Fed's Inflation Nightmare Scenario - 17th Jul 17
Billionaire Investors Backing A Marijuana Boom In 2017 - 17th Jul 17
Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - 17th Jul 17
Gold and Silver Biggest Opportunity Since Late 2015, Last Chance at These Prices - 17th Jul 17
Stock Market More to Go - 17th Jul 17
Emerging Markets & Basic Materials Stocks Breaking Out Together - 16th Jul 17
Stock Market SPX Uptrending Again After Microscopic Correction - 15th Jul 17

Market Oracle FREE Newsletter

Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts

The US Presidential Election Stock Market Cycle

Stock-Markets / Stock Markets 2016 Nov 07, 2016 - 06:23 PM GMT

By: Gary_Tanashian

Stock-Markets

The market has been very readable since before Brexit.  It was over bearish and due for a post-Brexit rally . It was due for a drop to test major support , but amid last week’s highly broadcast 9 straight down days and the renewed Clinton email scare, it was due for a bounce from over bearish status . However, this is not the end of the story. We remain on a test of major support unless certain upside resistance parameters are taken out. Beyond this highly volatile phase, we are likely either going to confirm major support and potentially break out to new highs or a bear market will ensue.


Figuring prominently in the short-term is the US election. Here is NFTRH 420’s weigh-in on something I almost never want to comment on but did in this week’s report, given Donald Trump’s ‘overbought’ status last week.

The Presidential Cycle (graphic sources: FactSet.com)

The final 2 months of previous election years have been overwhelmingly positive. The exceptions being the tumultuous times of the Great Depression leading into World War II and very interestingly, the recessionary times of 2000 and 2008.

2000 and 2008 are relevant to today because these were also election cycles that have come during what I have called the “age of Inflation onDemand”; i.e. they have come during the post-2000 phase first kicked off by Alan Greenspan, continued by Ben Bernanke and now… Janet Yellen, which features ever more intrusive and innovative inflationary monetary policies in response to market and economic problems. In other words, we are in a time of boom and bust cycles, at least when one party hands off its 8 years in office to another.

The two cases from this millennium were Democrat on Republican crime and Republican on Democrat crime. In other words, the implication of that small sample size is that if Trump wins, the market would turn today’s weakness into a support breakdown and some terribly bearish events. If Clinton wins, the situation is more hazy, but with party continuity – as in 1996, 2004 and 2012 – the implication would lean bullish.

Now, I am not saying these would be the effects that actually come about. I am saying that the data indicate that way. But in market management we have to use many tools at once in finding our path. There are no absolutes and there are no silver bullets. When someone promotes a single indicator that “predicted” an event they are leaving out all the times it failed to predict events (when used on its own).

So going by the above data, a Trump victory would be the market-bearish course. A Clinton victory would probably see major support hold in US markets. Or would it? A breakdown of nearly a century’s worth of data shows that the market finishes out election years better under an elected Republican than Democrat.

But then, the entire year has tended to be positive when a Republican is to be elected.

These data points are blunt and take out the details we worked through above, and I am inclined to give more weight to dynamics in play most recently, like 8 year presidential runs handed off to the other party during the “age of inflation onDemand”, AKA a time of boom and bust cycles of increasing intensity. So if one party hands off to the other, especially with the questions and controversy surrounding Trump, the implication is bearish, if taken at face value.

Keeping the tool blunt, we generically review the 4 years of the cycle, without the details. What I find interesting is that on this cycle ‘Election Year +3’ was relatively bearish (ref. the market disturbances and what sure did look like a topping pattern in 2015). Speaking as a data twittler, I might not read much into that. But speaking as a human with perhaps paranoid intuition, I do not feel good about that. What I feel is that in maintaining easy monetary policy long past its shelf life, the Federal Reserve may have built in the next moral hazard by denying that massive S&P 500 topping pattern its due pound of flesh.

Here is what I mean. For all that policy leniency, this is all they could muster in years 3 & 4? A basically flat market in 2015 and essentially the same thing in 2016?

If I wanted to go all Tin Foil Hat on you I’d say that they have been propping and propping, and yet greatly underperformed the historical despite such efforts. Now what happens if we hand off to a new party? For that matter, what happens when we hand off to a new president, regardless of party?

Here is a breakdown of Democrat to Democrat and Democrat to Republican hand offs. Election year seems fine (again, if we ignore 2000 and 2008, which we of course won’t). But what is up with Demo to Repub in Year 1? This generalized data has an anomaly that is well worth our attention.

Finally, a look at sector performance during elections years. This view shortens the sample size from early last century to 1992 (when S&P sector data first became available). Use the sector data as you will, but what I find more interesting is that since 1992 the S&P 500 as a whole has been negative during election years (driven by Info Tech, Materials and Telecom).

Bottom Line

I see enough in the various data above to be very guarded through the election if Trump holds firm or gains in the polls. There is a scenario where the final 2 months could be okay but then 2017 hits the skids and there are multiple other scenarios in play. The theme for me personally and for NFTRH, has been profit retention since mid-summer. With so many wild cards in play I think we should continue on that path this week. The main items that jump out at me are the more recent examples of Demo → Repub in 2000 and Repub → Demo in 2008, (which preceded bear markets and recessions), the fact that Year +3 was incredibly weak and extreme weakness of EY +1 (2017) when a Democrat hands off to a Republican. The market wants Clinton, i.e. status quo.

And on that note we finish with a look the most recent polling and electoral map from RealClearPolitics.com. If the most recent Clinton email scare did not put Trump even or ahead, the odds favor Mrs. Status Quo. To put it in a way familiar to our usual discussions, I think Trump got short-term over bought last week. And with the election on Tuesday, the short-term is all there is. [edit: on this last note, this just out:  Clinton Gets Boost From FBI]

Subscribe to NFTRH Premium for your 25-35 page weekly report, interim updates (including Key ETF charts) and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2016 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife