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What to Expect in the Fourth Quarter of an Election Year


We know it will be volatile, but will it move up or down? Here's the analysis.


Election Years: This year, however, is a presidential election year. As the election is always a fourth-quarter event, it might be pretty useful to see if this changes things. The table below summarizes election-year returns since 1950. We still see the outperformance for the fourth quarter during election years. Most impressive is that they have been positive 13 out of 15 times.

But are election years more volatile than others? Perhaps the added uncertainty an election brings causes the markets to be a bit more erratic than usual. We measured this by looking at the standard deviation of daily returns during each quarter for the Dow over the past 20 years. Below are the results for each quarter during each Presidential cycle year. As suspected, the fourth quarter during election years produces the most volatile daily returns.

So, what can we expect over the next three months? According to the analysis above, we could very easily see a market that moves higher -- with a little extra volatility.

(See also: Ride Out the Short Term for the Next Major Market Surge, This Week's Key Events: Earnings Season Begins and PPI Data Hits the Street, and Dissecting the Sectors: Retail and Homebuilding.)

This article by Rocky White was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
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