Alfred Lettner - Will 2016 Be a Good Year for Stocks?
Since 1946, the final year of a U.S. presidential term has also been a very good year for the stock market. Advisors at Alfred Lettner discuss whether that cycle will continue this year.
Vienna, Austria, March 7, 2016 (Newswire.com) - "The 'Presidential Stock Cycle' theory is an interesting concept and it's more than likely the market will do well, if you believe the theory will continue to hold,” Anthony Young, a Senior Investment Manager at Alfred Lettner in Austria, says. “But that's the rub – because while history shows the odds will be in your favor if you follow it, it doesn't always work.”
Since 1946, the stock market has risen 76 percent of the time in the final year of a president's four-year term, with the Standard & Poor's 500 index rallying 6.1 percent on average, according to analysis provided by Alfred Lettner.
The data covers the seven-decade period from Dec. 31, 1945 through to this year. If an incumbent is re-elected at the end of the four-year term, then the cycle starts again at year one – so 2016 is the fourth year in the second term of President Barack Obama.
"The theory is that going into the election, the Presidents are paving the way for their success in the election," explains Young, who originally hails from Scotland but has been employed at Alfred Lettner in Austria since 2013.
“The improved economy ultimately leads to better profits for companies and it is those increased earnings that drive stock prices higher,” adds Young.
Simon Conway, the Investment Director at Alfred Lettner, says “the speed at which the Fed raises rates will be the key driver of the stock market in 2016. The faster it does, the less happy investors will likely be.”
“Other factors that could depress markets would be a conflict between the U.S. and China over navigation rights in the South China Sea or an economic crisis in a large emerging market, such as South Africa, Turkey or Brazil,” Conway says.
“Either way, there’s going to be lots of activity on the global markets this year and I, for one, am hoping the ‘presidential stock cycle’ continues,” concludes Conway.