Despite the recent uptick in volatility and today’s drop the
S&P 500% is up 17.2% year-to-date. This is right in line with our 2021 Annual
Forecast best case scenario made last December. Our updated outlook
is for S&P 500 to finish the year in the 4300-4500 range or even higher.
However, as you can see in the chart of the Modern 4-Year
Presidential Election Cycle we are due for a pause over the next couple of
months before the rally resumes in the September/October timeframe. This
illustration of the average 4-year cycle uses the S&P 500 back to 1949,
which is the first full cycle post-WWII vs. other comparisons that use the Dow
back 125 years to 1896.
We feel the more recent dataset is a better representation
of the modern cycle where post-election years have been better and election
years weaker – impacted by the undecided election in 2000 and the financial
crisis of 2008. Midterm years are still lackluster with propensity for the
significant bottoms and pre-election years are still the tops.
This creates the sweet spot of the 4-year cycle from Q4 in
the midterm year through Q2 in the pre-election year. From the midterm low to
the pre-election year high DJIA averages a 45% gain since 1950 and NASDAQ
averages a 70% gain since 1974.