PRESS RELEASES
LOS ANGELES –The most favorable time to invest in the Dow Jones Industrial Average (DJIA) begins in October of the second year of a presidential term through the end of December of the fourth year, finds new research by Marshall Nickles and Nelson Granados, professors at Pepperdine University’s Graziadio School of Business and Management. Published this month in the school’s online peer-reviewed journal Graziadio Business Review, the paper confirms Dr. Nickles’ 2004 study identifying the relationship between presidential cycles and stock market performance using Standard and Poor’s 500 Index.
“Risk may be reduced and returns may increase when an investor considers how economic policy influences stock market prices during the presidential election cycle,” write Nickles and Granados, who observe that incumbent presidents eyeing re-election predictably introduce economy-boosting fiscal and monetary policies as early as the end of their second year in office, such as proposing tax reductions, increasing money supply and reducing interest rates.
“If policymakers are successful in exerting positive influences on the economy as elections approach it should be logical to expect less volatility in the stock market,” the authors say.
Nickles and Granados measured risk within presidential cycles since the 1950s and found only a few significant exceptions to the optimal investing trend; most recently the 2008 market collapse. The negative economic events surrounding the 2008 presidential election temporarily broke the long-standing pattern. However, the authors conclude that this instance must be considered an economic and stock market anomaly.
Precipitated by domestic and global economic events, the authors say the 2008 financial collapse was too powerful for the market to overcome. “When we compared the favorable to the unfavorable period for the post-2008 time frame, the DJIA has again performed to date better during the favorable period,” they write.
“We feel that with the advent of merging international markets and modern technology, the more the average investor knows about the interrelationship between politics, economics and the stock market, the more equipped he or she will be,” conclude Nickles and Granados.
Dr. Marshall D. Nickles is a professor of economics at Pepperdine University and author of the original paper “Presidential Elections and Stock Market Cycles: Can You Profit from the Relationship?”
Dr. Nelson Granados is an associate professor of information systems at Pepperdine University and an award-winning researcher on market transparency and pricing strategy.
Nickels and Granados are available for comment. The Graziadio Business Review paper may be found at gbr.pepperdine.edu.
Presidential elections always impact the stock market in some way. After all, a presidential election poses the possibility that if the incumbent loses, stark changes could be made as a result in foreign policy, economic regulations, and tax codes. All of these policies affect the American people, and moreover, the American investor.