Counting on q4

Ben Franklin voting

Will history repeat itself?

. Since mid-September I have added 12 positions to my portfolio, all but one of which I still hold. There is a method to this madness — or at least a basis in stock market conventional wisdom, or superstition.

The folks over at Dogs of the Dow have prepared several charts that show the cyclical nature of the stock market (Look in the section called The Dow). One pattern often noted is the way the stock market tracks the cycle of presidential elections.

presidential cycle
The Dow and the presidential election cycle (Source: dogsofthedow.com)

The logic is that administrations implement any painful economic measures early in the term so the economy will recover before the next presidential election and improve chances for the party in power. Following this logic, the market tends to show a distinct improvement from mid-term elections onward.

yearly cycle
The Dow's yearly cycle (Source: dogsofthedow.com)

Regardless of the presidential cycle, the market tends to rise during the fourth quarter (Oct-Dec) anyway, as shown in the chart above. This pattern is even more pronounced in recent years.