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It’s an Election Year, That Means a Summer Market Rally

If it’s a presidential year — and it is — that means a market rally in the summer. At least that’s what some analysts are saying.

If Presidential election cycles furnish a market precedent, then spring showers may bring summer flowers. Subpar market performance in recent weeks compared to past presidential election cycles and average seasonal trends bolster the case for a summer stock market rally, according to technical research analysts at Merrill Lynch. Historically, April and May are the cruelest months for investors — in years when the White House is at stake.

“This pattern supports our market view and suggests buying a late spring to early summer dip,” say analysts at Merrill. They predict a sluggish market through May then a rally starting in June that will heat up in July and August. For an added measure of confidence, a summer rally would track typical performance in the second year of ten-year cycles that start in years ending with a zero, the so-called decennial pattern. The bottom line for investors swayed by this technical analysis? Make hay before the sun shines.  
S&P 500 average monthly price returns- data from 1928 to present.
MONTHPRESIDENTIAL
ELECTION YEAR
NON-PRESIDENTIAL
ELECTION YEAR
AVERAGE
SEASONAL
PATTERN
DECENNIAL
YEAR 2
Jan0.26%1.59%1.26%-0.76%
Feb0.06%-0.26%-0.15%-0.65%
Mar1.19%0.34%0.55%-1.67%
Apr-0.60%1.88%1.27%-4.25%
May-1.30%0.34%-0.07%-3.28%
Jun1.38%0.48%0.71%-1.98%
Jul1.98%1.31%1.48%5.17%
Aug3.11%-0.07%0.72%6.63%
Sep-0.45%-1.40%-1.16%-2.20%
Oct-0.07%0.58%0.41%1.64%
Nov0.61%0.60%0.61%3.13%
Dec1.43%1.47%1.46%1.67%
Source: BofA Merrill Lynch Global Research; Bloomberg

 

 
S&P 500 average monthly price chart
Source: BofA Merrill Lynch Global Research; Bloomberg

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