I don’t consider myself a political person. I don’t stay up late on election nights to tally results. Nor do I put signs up in my front yard. In fact, my personal views about the way our great country should be run don’t even fit into any of the mainstream viewpoints.
Regardless, as an investor, I am very interested in figuring out how a new Administration will affect different assets, especially stocks. I try to remain as objective as possible when doing my analysis. I let the numbers do the talking, and adjust my strategy … rather than trying to make the numbers fit my strategy or worldview.
With that in mind, I recently did an in-depth study of 81 years worth of stock market data to help my Dividend Superstars subscribers understand what Obama’s election could mean for their portfolios. And today, as our new President officially takes his place in the White House, I want to share the essence of my findings with you, too.
According to My Presidential Cycles Study,
Stocks Should Gain — Modestly — in 2009 and 2010
Based strictly on past Presidential cycles, 2009 will be positive for stocks but produce a below-average return. The first year of a Presidential term is historically the worst for stocks.
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On average, the S&P 500 has risen just 3.1% in the first year of a new President’s term. However, the first year of a Democratic candidate has produced a much better average performance — an 8.9% gain vs. a 2.78% loss under a Republican (the only negative number in the party averages).
Keep in mind that my 81 years of data (1928-2008) includes 41 years of Republican leadership and 40 years of Democrats, so the results shouldn’t be skewed because of unequal representation.
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Speaking of political parties, my study led to another interesting conclusion: Overall, stocks have done much better under Democrats, with an average increase of 10.1% vs. 3.1% under a Republican White House.
In terms of Democratic leadership, the second year is typically the weakest for stocks, producing a gain of 4.29%. That would make 2010 another rough one for the markets.
Of course, the current climate is hardly typical. Much will depend on how swiftly and effectively the new Administration handles its massive challenges.
Obama has already announced his intention to launch the largest infrastructure initiative since Eisenhower developed the U.S. highway system about 50 years ago. He is pushing for the release of the second half of the $750 billion in bailout money approved by Congress. And he is aggressively arguing for another $850 billion in new stimulus measures.
Only time will tell how successful these moves are. But so far, the bailouts have a very limited impact on our nation’s current state of affairs.
If the market doesn’t take off immediately, don’t be shocked. As past Presidential cycles demonstrate, it often takes a few years for an Administration (and companies) to see the benefits of new initiatives.
In Fact, the Third Year of a President’s Term
Is Typically the Strongest for Stocks
Strictly going by the numbers, we can expect 2011 to be a very good year for stocks. Under all Presidents from 1928, the third year of a White House term produced an average annual gain of 14.12%. And in a Democrat’s third year, the gain averaged a whopping 17.7%!
I find that extremely interesting, especially in light of what top economists are forecasting right now — a deepening recession through 2009, and a housing market bottom sometime in 2010.
In other words, based on current fundamental analysis, 2011 would in fact be the light at the end of the tunnel for the U.S. economy. Overlay that with my Presidential cycle model and all indicators point to the same thing — a big rally in 2011.
Again, these are atypical times … and history never repeats itself perfectly. But I do think looking back at long spans of time can provide us with interesting investment insights. And if the Presidential cycles demonstrate anything, it’s that stocks will post solid gains under Obama … even if we have to wait a couple years to see Wall Street celebrate his inauguration.
Best wishes,
Nilus
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There are some events have more important influence over the 4-year cycle. Normal recovery is about 35% from the market low and it happened to some extend in 2009.
ReplyDeleteThe author also said and I summarize:
ReplyDeleteOne reason why: A positive opening day for the stock market resulted in a positive year in 25 out of 37 instances since 1928.
In fact, putting money into the S&P 500 only on the first trading day of the month would have resulted in a 10-year gain of about 25 percent vs. a fully-invested-throughout-the-decade loss of nearly 23 percent.
Other Historical Indicators Point to At Least
Moderate Gains for U.S. Stocks in 2010 ...
But what about the second year, the year we're in now? It has provided an average gain of 4.05 percent.
It's worth noting that last year's tremendous gain deviated sharply from the typical first year of a president's term, but whether that means this "year two" will also produce big gains remains to be seen.
Overlaying historical gains seen in bull and bear markets, however, makes things look more positive ...
The average S&P 500 bull market has produced a 164 percent gain off the previous bottom, implying an ultimate price of 1801.93 from the March 2009 low.
That clearly leaves room for LOTS of additional upside from stocks in 2010 and beyond.
However, I feel compelled to come back to today's reality — especially
my belief that we are unlikely to see a V-shaped economic recovery.
Things have stabilized, but our country is still wrestling with a major debt hangover.
In short, don't be surprised if we see only modest capital appreciation from stocks in the year ahead.
But I Would Also Remind You That Dividends Are Critical
To Your Portfolio's Overall Performance in 2010 and Beyond
Yes, 2009 was the worst year on record for dividends in more than 50 years, with both the most payment decreases — 804, more than six times as many as we saw in 2007 — and the fewest increases — 1,191, a 36 percent drop from 2008.
The good news, however, is that:
1. Many of my Dividend Superstars recommendations not only maintained their payments, but increased their dividends last year, and ...
2. The third quarter of 2009 could have marked the bottom for dire dividend releases, with better news on both the increase and decrease fronts happening in the fourth quarter.
Dividend stocks can boost your income in 2010 and beyond.
Dividend stocks can boost your income in 2010 and beyond.
Never forget that dividend payments have accounted for about 42 percent of the stock market's gains through the years, either!
So the bottom line is that I continue to think dividend stocks — especially my favorite superstars — will be the best income alternative in the year ahead.
They have the potential to post additional capital appreciation ...
They should continue to increase their payments ...
And based on their current yields relative to other investments, they remain terrific income investments, too.
Best wishes,
Nilus
P.S. Don't think I've forgotten about India! I'll be spending the next week reviewing my notes and formulating my thoughts for the next issue of Dividend Superstars, which goes to press on January 29.
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