President Barack Obama's State of the Union address on Tuesday night might have hit the right notes for investors – he said something about corporate tax cuts and revving up innovation! But, more importantly, the address signalled the start of his third year in the White House, and many observers like to point out that third years are good years for the stock market.
"First-term presidents lose their cockiness and adopt a more moderate stance on various controversial issues to increase their chances of getting reelected," said Ed Yardeni of Yardeni Research. "Second-term presidents start to focus on their legacies by positioning their party to win the White House again."
His numbers are certainly compelling. The third years of the presidential cycle have produced average stock market gains of 18.4 per cent since 1953. That wallops the 4.4 per cent average return during first years, the 5.4 per cent return during second years and the 5.7 per cent return during fourth years.
With the S&P 500 already up 92 per cent from its low point in March, 2009, it's hard to bank on double digit gains ahead simply because of the presidential cycle. Still, as Mr. Yardeni points out, President Obama has built the right foundation for more gains.
"He is sounding more presidential and less petty populist," he said. "This is already paying off in his rapidly improving popularity in the polls. While his State of the Union message included most of the same themes as a year ago, the tone not only was pro-business but actually included a proposal to lower the corporate tax rate."
David Berman