As we enter the 12th year of economic expansion since the Great Financial Crisis, investors continue to wonder whether 2020 will be the year when equity markets finally experience a correction. Reviewing the presidential market cycle theory, it appears that the strong 2019 just completed is consistent with historically robust equity market performance in the third year of a president’s first term. Since 1927, the S&P 500 has historically returned 13.7 percent in the third year of the president’s first term and, similarly, the S&P 500 has historically returned 12 percent during the 4th year. Conversely, during the 4th year of a president’s second term, markets have declined by 1.3 percent (heavily skewed by the 38.5 percent decline in 2008 during George W. Bush’s second term). As stated in our 2020 outlook, “The Song Remains the Same”, the economy is on strong footing, supported by an accommodative Fed, benign inflation, and the U.S. consumer, who continues to spend. In our view, it seems the 4th year equity market performance trend will also remain the same.
Source: Bloomberg