The third year of a president's term has been the best for stocks, and the second year, the midterm year, has been the worst. Since 1950, the S&P 500 has averaged a 17.2% price gain in pre-election years and just 4.6% in midterm years.
The other two years land in between, at 8.4% and 8.1%.
Average S&P 500 return by year of the term, 1950 to 2025
Year 1, post-election, 8.4%
Year 2, midterm, 4.6%
Year 3, pre-election, 17.2%
Year 4, election, 8.1%
Where the idea comes from
Market historian Yale Hirsch put the four-year presidential cycle on Wall Street's map in 1967. The theory goes that presidents push their toughest policies early in a term, then try to juice the economy ahead of the next election.
His son, Jeff Hirsch, explained why the stretch from the fourth quarter of a midterm year through the middle of the next year is the sweet spot of the cycle on Full Signal.
The pre-election year's track record
Year three has been remarkably steady.
The S&P 500 fell in only two pre-election years since 1950, 2011 and 2015, and both times by less than 1%
The best was 1995, up 34.1%
The 2023 pre-election year gained 24.2%
Why midterm years lag
Midterm years bring the biggest swings. The S&P 500's largest peak-to-trough drop within the year has averaged 17.5% in midterm years, compared with 11.2% to 13.3% in the other three years of the term.
The best midterm year was 1954, up 45.0%
The worst was 1974, down 29.7%
2022 fell 19.4%
Only 11 of the 19 midterm years since 1950 finished higher. The payoff has tended to come once the vote is over. The S&P 500 has been higher 12 months after every midterm election since 1950, which is why midterm years can still be bullish for patient investors.
Election years have been solid but uneven. The worst one since 1950 was 2008, when the index fell 38.5% during the financial crisis.
Where 2026 and 2027 fit
2026 is year two of the current term, and 2027 is year three.
2026 has run well ahead of the midterm average, with the S&P 500 up 11.9% for the year as of October 16. The stretch from the fourth quarter of 2026 through mid-2027 is the one that's historically been the strongest.
The cycle doesn't call every year, but the gap between year two and year three has been too wide to ignore.
For more on rates, the Fed and the economy, see the Opening Bell Daily’s macro coverage.
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