New President Likely Means Muted Gains for Stocks Through 2018

American flagAnalyst Nilus Mattive digs into presidential history and finds that a new administration will likely bring flat market performance for the next couple of years.

I’m not sure if you’ve heard, but there is currently a rather heated presidential election under way.

In all seriousness, there is no doubt that the two major candidates (as well as other third-party choices) have decidedly different views on how the United States should operate going forward.

Please know that our entire team is currently working behind the scenes to assess all the various ways that different election outcomes might affect your financial picture in 2017 and beyond. And we plan on sharing a lot more information on those things over the next few weeks.

But for now, as media outlets continue to buzz about Sunday night’s second debate, I’d like to focus on a much-bigger picture — what I like to call the presidential stock market cycle.

To this day, I continue to update spreadsheets that were passed on to me by some early Wall Street mentors … including one that tracks stock market metrics going back to 1928.

That data now represents almost 22 full Presidential terms — plus one extra year under Calvin Coolidge — and encompasses 41 years of Republican leadership and 48 years under Democrats. (For 2016, I used year-to-date data through Sept. 20.)

While I plan on giving my Income Superstars subscribers an even more in-depth look at this information next month, I wanted to share two of the biggest things I’ve noticed in going over the spreadsheets so far.

#1. Up until President Obama took office, the first year of a presidential term was generally the worst for stocks … with a typical gain of just 4.1%.

However, 2008 bucked the trend so hard — with a 23.4% surge — that it brought the entire cycle average up enough to move into second place.

#2. The third year of a presidential term remains the best one for stocks by a huge margin, with an average gain of 12.8%.

My theory is that this is because markets have reached a point of acceptance regarding the current administration while the current president is simultaneously hitting a sweet spot in terms of policy implementation.

Here’s a look at the specific numbers:

So based on this single study, we might expect relatively muted gains from stocks in both 2017 and 2018.

That forecast is only reinforced by fundamental factors like rock-bottom interest rates … which I discussed in last week’s article.

On top of that, I would note that the typical U.S. stock is trading a relatively stretched valuation right now. This means there is little room for more price gains unless corporate earnings rise sharply.

So no matter who — if anyone — you are currently supporting in this year’s election, the reality is that an early look at the most up-to-date presidential cycle numbers suggest a muted performance from equities over the next couple years.

I think that is yet another reason to favor less-risky parts of the investment world, and to continue emphasizing steady income-producing assets.

The iShares S&P 500 Index ETF (NYSE:IVV) fell $0.57 (-0.26%) to $216.77 per share in premarket trading Tuesday. Year-to-date, the second largest ETF that tracks the benchmark S&P 500 index has risen 6.09%.

This article is brought to you courtesy of Uncommon Wisdom Daily.