3rd Year of a President’s Term Is Best for Stocks, Report Says

If you believe that the stock market responds to the presidential election cycle, or at least to where we are in a chief executive’s term, new research says that now—that is, the third year of the current administration—is historically the best.

In the third year, which is of course 2019, the S&P 500 has been up 81.8% of the time since 1928, according to research firm Bespoke Investment Group. The fourth year, namely when the election happens, is in the black 72.7% of the time. But the first and second years are ahead an identical 56.5%.

That makes sense because administrations tend to push new initiatives in the first half of the term, which may unnerve some investors. What’s more, the stock market advances most of the time historically, aside from some big pratfalls (like 1929, which was year two for Herbert Hoover, and 2008, George W. Bush’s final year).

Bespoke presumably chose 1928 to start its study because the predecessor of the S&P 500 launched in 1926 (it originally was 90 stocks and expanded to 500 in 1957).

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A president’s year three also has the best returns, with an average gain of 12.81%, Bespoke said. By comparison, year four’s showing was pedestrian, at 5.71%, which was close to the increases in the first two years, 5.66% and 4.54%.

So far, the three years of President Donald Trump have kept to the pattern, at least for this year and 2017. Turns out that in 2019 to date, the S&P 500 is ahead 24.5%. Trump’s first year was up 19.4%, but his second was down by 6.2%, as the market slumped in the fourth quarter and barely missed moving into bear territory.

While fears of a recession next year are abating, the US-China trade war or some other event could mess up the buoyant market in 2020. If so, that will be a statistical anomaly.

Looking Beyond The Election

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Tags: Bespoke Investment Group, Donald Trump, presidential election, S&P 500

In a time where institutional investors around the country are facing pressure from constituents to invest in an environmental, social, and governance (ESG)-conscious format, any news regarding an investment violating these trends is bad news.

The Oregon State Treasury is the latest to receive such attention, with the Associated Press recently publishing a report citing officials that condemn some of its holdings. According to the report, the state pension fund was found to have invested in a smartphone spyware company that’s used to oppose “human rights defenders, dissidents, and journalists by repressive regimes.” These investments run congruent to the state’s investments in two prison companies that run immigrant detention facilities, according to the report.

Oregon State Treasurer Tobias Read said in a statement that these investments are captured via index, and noted the pension has no control over what sorts of companies are included or disengaged from the index. By fully repealing themselves from the index investment, Oregon will “incur costs that violate the ‘paramount objective’ of making money,” the AP said the treasurer’s office stated.

The pension also has a $233 million investment in Novalpina Capital, which marketed itself to the pension’s council by saying “as investors, we assume we have to be contrarian. We have to find deals that other people don’t see or don’t want to do for various reasons,” according to a 2017 meeting recorded on the treasury’s website.

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Novalpina Capital bought a large stake in a spyware company alleged to be involved in the murder and dismemberment of Jamal Khashoggi, a journalist who was killed in the Saudi consulate in Istanbul last year, according to the AP’s report.

“It’s unclear whether Novalpina’s founders already intended to invest in NSO Group [the co-owner of the Pegasus spyware] when they came to Oregon. Novalpina did not respond to a request for comment,” the AP reported.

Novalpina targets mid-market companies with an enterprise value of €200 million-€1 billion, with a broad-pan European focus in markets and industries undergoing fundamental transitions, according to its website. “All investments made by Novalpina take into account the ESG principles and we are signatories of the PRI, the Principles for Responsible Investments, promoted by the United Nations,” a statement on its website reads.

Mistaken index investments have been popping up recently, oftentimes unbeknownst to the investors in such indices. For example, the Tennessee Consolidated Retirement System was found to have invested more than $720,000 in a company in the marijuana industry, despite the state government’s hard-pressed agenda against the drug.