Sunday, June 08, 2008

Election Year Market Return: Don't Sell In May?

An often repeated stock market mantra is to "sell in May and go away." One often forgotten fact is historically the market has performed differently in presidential election years.

A recent chart by Chart of the Day details the performance of the Dow Jones Industrial Average in election years.

With the 2008 presidential campaign now in full swing, today's chart illustrates how the stock market has performed during the average election year. Whether the average election year is measured from 1980 or 1900, the market has tended to struggle during the first five months of an election year. That initial subpar performance was then followed with a rally (on average) right up to the November election. One theory to support this election year stock market behavior is that the first five months of choppiness is due in part to the uncertainty of the outcome of the presidential election (the market abhors uncertainty) with the market beginning to rally as the outcome of the election becomes increasingly evident.

No comments :