ONE of the most reliable guides to investing in the American stock market — to buy during the third year of a presidential term — is in danger of failing for the first time since the Great Depression.
...The last negative return during the third year of a presidential term was in 1939, when the loss was a barely noticeable 0.1 percent. That loss came as storm clouds gathered in Europe with the beginning of World War II. It is hard to think of any year since the war when Europe’s problems have loomed as large to investors as they have this year.
As can be seen from the accompanying charts, an investor who put money into American stocks at the beginning of each third year, and then got out of the market for the next three years, would have done far better than one who chose any other year of the presidential cycle to invest in.
...A $100 investment in 1947, allowed to grow only in third years, would be worth more than $2,000 now. Similar investments in the first, second or fourth years would have grown to less than $400.
It has long been suspected that the fact that third years were the best was far from a coincidence, as presidents sought to stimulate the economy and corporate profits heading into a year when they would seek re-election or, if they were completing a second term, try to keep the White House in the hands of the same party.
This year, the economic outlook has been anything but clear, with encouraging signs of growth early in the year replaced by fears of a double-dip recession in the summer as the European credit crisis intensified. Since August, the market has gyrated wildly as European prospects have seemed to change almost daily....
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Link: http://www.nytimes.com/2011/12/03/business/as-a-market-predictor-a-trusty-guide-falters.html
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