The Most Bullish Stretch of the Presidential Election Cycle Is Underway

September 29, 2010 (SPY @ 114.15 @ 10:46 a.m. EST):  If history is any guide (and it is the only one that we have), we are currently about to enter the most bullish stretch of the four year presidential election cycle.  As the accompanying table shows, midterm Octobers (10 in the month row in the "Mid" column) have an average 3.08% gain. Although as I write this, September has been up sharply, so it is possible that October may see a natural selloff or less than average gain.   Nevertheless, the next 11 months - through September of the pre-election year - have all been up sharply on average with the exception of pre-election Mays (0.15% average).  Selloffs in September and October of the pre-election year (2011) have given each of those months a negative average return (the crash of '87 occurred in October of the pre-election year, which, like all pre-election years since World War II, ended the year up - the sell-off simply wiped out most of the gains of the year).

	Month x Election Year Live Tables:
Month:	Post	Mid	Pre	Ele
1	0.31%	-0.50%	4.24%	0.13%
2	-1.71%	1.16%	0.88%	-0.48%
3	0.39%	0.48%	1.82%	0.73%
4	1.52%	0.51%	3.24%	1.21%
5	1.69%	-0.95%	0.15%	0.46%
6	-0.75%	-2.04%	1.84%	1.37%
7	1.91%	0.24%	1.19%	-0.06%
8	-1.02%	-0.50%	1.20%	0.70%
9	-0.27%	-1.89%	-0.49%	-0.39%
10	1.03%	3.08%	-0.94%	-0.40%
11	1.74%	2.65%	0.36%	1.02%
12	0.61%	1.72%	2.95%	1.08%

Interview on seasonality on Traders Talk Live

Craig Weil of Traders Talk Live, a Saturday morning AM radio show, interviewed me about seasonality and the stock market and how Democratic victories lead to much better stock market returns than Republican ones. You can listen to the mp3 podcast or visit the website. You can find all the old shows archived; it's a good source of information and inspiration (you have to fast forward through all the Chicago traffic updates though). :)

Seasonality Continues to Work

Seasonality Continues to Work

The "sell in May" strategy has continued to hold up despite its wide publication. Even since 2000, when the overall market as measured by the S&P 500 went nowhere, $10,000 invested in the S&P 500 in November and moved to cash in May would have grown to $11,140 versus dwindling down to $9.003 for buy and hold.

Investing in the best 3-month cluster, November through January inclusive then moving to cash during the other 9 months of the year would have done even better, turning $10k into $12,618, or 40.2% better than buy and hold with only 25% of the exposure to the stock market.

2000- March, 2008:

B&H:	11-1	11-4:
9.003	12.618	11.140
v BH:	+40.2%	+24.0%

	12/99	03/08
S&P 500	1469	1322.7
buy and hold:		-9.9%
11-1:		+26.2%
11-4:		24.0%

Looking back further:

Dec 64-Mar 2008: S&P 500 Total Returns (including dividends, investing in 90 day Treasuries for other periods):

$10,000 would have grown to $624,542 dollars with reinvested dividends from December 1964 to March 2008 using a buy and hold strategy.

If one had invested only in November through April, then parked in 90 day Treasury bills for the other 6 months, one would have had a final $806,508, 29% more, although only exposed to half the risk!

Conversely, investing in the other 6 months, May to October, then parking in 90 day Treasury bills would have led to a flat nominal return with a grand total profit of $10 over the 44 years!

BH:	11-1	11-4:	5-10
624.542	470.644	806.508	10.010

Exact Average Returns 1945-Aug 07, spx:
	Pres Yr:
	Post	Mid	Pre	Ele	All:
Month:	1	2	3	4
1	0.92%	-0.30%	4.24%	0.54%	1.37%
2	-1.12%	1.06%	0.88%	-0.28%	0.14%
3	-0.12%	0.14%	1.82%	0.82%	0.67%
4	1.03%	0.45%	3.24%	0.97%	1.43%
5	1.47%	-0.50%	0.15%	0.42%	0.38%
6	-0.79%	-1.83%	1.84%	2.04%	0.29%
7	1.57%	0.24%	1.19%	0.01%	0.77%
8	-1.29%	-0.50%	1.19%	0.67%	0.01%
9	-0.51%	-1.89%	-0.76%	0.19%	-0.69%
10	1.22%	3.08%	-1.10%	0.70%	1.02%
11	1.49%	2.65%	0.68%	1.59%	1.62%
12	0.54%	1.72%	3.20%	1.10%	1.62%
All:	0.36%	0.36%	1.40%	0.73%	0.72%
	4.4%	4.4%	18.2%	9.1%	9.0%

There has never been a down pre-election year; 2007 was no exception: +3.5% on the S&P 500 before dividends.

Exact Average Returns 1980-Aug 07, spx:
	Pres Yr:
	Post	Mid	Pre	Ele	All:
Month:	1	2	3	4
1	2.22%	-0.45%	3.69%	0.97%	1.61%
2	-0.61%	0.56%	1.26%	0.11%	0.33%
3	-0.76%	1.68%	2.37%	-0.79%	0.62%
4	1.60%	-0.40%	3.63%	0.71%	1.39%
5	2.91%	0.81%	1.82%	0.06%	1.40%
6	0.31%	-1.07%	1.81%	1.64%	0.67%
7	2.44%	-2.01%	0.32%	-0.20%	0.14%
8	-2.24%	0.15%	1.29%	1.88%	0.27%
9	-1.81%	-2.77%	-0.56%	1.15%	-1.00%
10	0.76%	5.61%	-1.87%	1.04%	1.39%
11	3.70%	3.01%	-0.45%	1.96%	2.05%
12	0.98%	0.47%	4.79%	0.40%	1.66%
All:	0.79%	0.47%	1.56%	0.74%	0.89%

	Oct-Apr close only:
							10k:
date	April	Oct:	5-10:	11-4:	'Win?	Nov-May:	5-10:	11-4:
2000	1452.4	1429.4	-1.6%	-12.6%	-	-11.00%	9,841	8,741
2001	1249.5	1059.8	-15.2%	1.6%	+	16.80%	8,347	8,883
2002	1076.9	885.8	-17.8%	3.5%	+	21.27%	6,866	9,195
2003	916.9	1046.9	14.2%	5.8%	-	-8.41%	7,839	9,725
2004	1107.3	1130.2	2.1%	2.4%	+	0.29%	8,001	9,954
2005	1156.9	1207.0	4.3%	8.6%	+	4.25%	8,348	10,809
2006	1310.6	1377.9	5.1%	7.6%	+	2.44%	8,777	11,628
2007	1482.4	1549.4	4.5%	-14.6%	-	-19.15%	9,174	9,927
2008	1322.7