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 Election Cycle Theory

The presidential election cycle theory is a stock market timing strategy. It was believed that the first two years of a newly elected president are spent on implementing his election agenda, putting downward pressure on the economy and stock prices. Eighteen months prior to the election, the economy would be at its worst and stock market prices at their low point. Over the next eighteen months, the focus changes to improving the economy in order to get re-elected, resulting in the economy running at full throttle at election time with stock prices higher. This theory has lost its following over the years. What has taken its place is the statistic that the third year of a presidential term is usually an up year for the stock market. Additionally, the last year of a two-term presidency is usually a down year for the market.

 

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