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The third year of a presidential cycle tends to be a very strong time for the stock market — so if history is any indicator, the 2019 bounce back to record highs with Donald Trump in the White House could very well be here to stay.
“What you’re seeing where President Trump is he had a strong first two years. Now he’s having a strong third year. That’s signalling something much different that prior presidents,” Joe Terranova, chief market strategist at Virtus Investment Partners, told CNBC Wednesday.
Terranova said the first two years for presidents tend to underperform and stocks get moving in the second half of their four-year terms.
The S&P 500 advanced 19.4% in 2017, the first year Trump was in office. While 2018 saw a 6.2% decline, together Trump enjoyed a strong first two years as president.
Since 1949, the average annual return for the index in the third year of a presidential cycle is 16%, according to Schaeffer’s Investment Research.
“I think the market is not paying enough attention to this third year of the presidential cycle,” Terranova said on “Squawk Box.”
The S&P 500 on Tuesday saw its first record closing high since September 2018, before the market stumbled late last year. As of Tuesday’s close, the index was up 17% year-to-date.
So if historical trends were to bare out, the stock market would be able to keep these gains come the end of 2019.
Schaeffer’s does point out that of the 17 presidential cycles in its data set, the third year was only negative two times and both were during the administration of Barack Obama in 2011 and 2015.
However, the stock market, even considering the financial crisis low in March 2009, actually was quite strong during Obama’s eight years as president, with the S&P 500 logging an annualized return of more than 16%.
