In this run to the White House, however, things are different. The best year for investors typically is the third year of an election cycle. From 1941 to 2004, the third year delivered an 18.2 percent average gain for the Standard & Poor's 500-stock index. Last year, however, the S&P edged up just 3.5 percent. So far this year -- the final year of the cycle -- stocks have continued to defy historical patterns. Through April 30, the S&P is down 5.6 percent, compared with an average gain in the fourth year of 8.9 percent, according to InvesTech Research, a financial research firm and newsletter publisher.
The reasons are obvious enough: a limping economy, a collapse in the housing market, surging commodities and a deflated dollar.
"The question now," associate editor Catherine Hetrick writes in the May issue of InvesTech's Portfolio Strategy newsletter, "is will this election year revert to a more 'normal' course between now and Election Day?"
From 1928 to 2004, the average S&P gain from May 1 to Election Day was 7 percent. Only three times has the market slipped during that period -- and only once by more than 2 percent. That was in 1940, when Germany invaded France.
Hetrick is encouraged by the Fed's repeated rate cuts since September, assistance for the housing market and the tax rebate program -- not to mention the historical patterns. "Of course, history in no way trumps the negative forces in today's market environment," she cautions. "It does, however, suggest that stocks could see less volatility, and even some gains, from now through Election Day."
InvesTech recommends what it calls a "safety-first strategy," targeting companies with decent prices, sound balance sheets and solid growth. Among the names it likes: EnCana (ECA), a large oil-and-gas company; Walgreen (WAG), the drugstore giant; PepsiCo (PEP), the food and beverage company; and Diageo (DEO), a maker of alcoholic drinks.
