Pre-Election year markets are almost always a win-win for investors and historically the strongest of the four-year cycle, according to the Stock Trader’s Almanac. There hasn’t been a down year in the third year of a presidential term since war-torn 1939, when the Dow Jones Industrials (^DJI) fell 2.9%.
While investors should feel pretty good about the rest of the year, the almanac’s editor-in-chief Jeff Hirsch, is not as bullish as he would be if this were a first term pre-election year. “This is the second term for a president and the second midterm years have been a bit softer.” As a result Hirsh says investors should dial down down their expectations for stock gains in 2015.
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Typically there is an average 50% move from a mid-term low to a pre-election year high but Hirsch is predicting lesser gains this year. “I don’t think we will get that full 50% this year. I think maybe 20% or 30% from that low. We’ve already tacked on about 16% to 17%.”
Hirsch expects the lion’s share of the gains to come during the first half of the year before the battle for the White House picks-up steam, which usually occurs during the fall time frame of a pre-election year. He is forecasting a run in the Dow Jones Industrials to the 19,000 level, the S&P 500 (^GSPC) to 2250 and sees the Nasdaq (^IXIC) potentially flirting with 5000.
While it’s tough for anyone to predict exactly where the market will land, investors can take comfort in the well documented stat recorded in the Stock Trader’s Almanac that the only severe loss in a pre-presidential election cycle year going back 100 years occurred in 1931 during the Great Depression when the Dow Industrials declined nearly 53%.
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