What Is the Presidential Cycle?
The US Presidential Cycle (or Election Cycle) is one of the oldest and best-documented seasonality patterns in equity markets. The idea: the four years of a US presidency each have their own statistically distinct return patterns. Yale Hirsch first systematically described the pattern in the 1960s — and it still works today.
The four years are classified as:
| Position | Name | Examples |
|---|---|---|
| Year 1 | Post-Election Year | 2025, 2021, 2017 |
| Year 2 | Midterm Year | 2026, 2022, 2018 |
| Year 3 | Pre-Election Year | 2027, 2023, 2019 |
| Year 4 | Election Year | 2028, 2024, 2020 |
The current year 2026 is a Midterm Year — historically the weakest year in the cycle.
The Results: 130 Years of Dow Jones
We analyzed the Dow Jones Industrial Average from 1898 to 2025 — 32 complete 4-year cycles, 128 years in total. Here is the summary:
| Cycle Year | Avg. Annual Return | Avg. Max Drawdown | Win Rate (positive) |
|---|---|---|---|
| Year 1 (Post-Election) | +3.8% | –16.7% | 56% |
| Year 2 (Midterm) | +5.1% | –17.9% | 59% |
| Year 3 (Pre-Election) | +13.2% | –16.1% | 78% |
| Year 4 (Election) | +7.9% | –15.8% | 66% |
The pattern is clear and persistent:
- Pre-Election Year (Year 3) is by far the strongest — on average nearly 4× the return of Post-Election Years
- Midterm Year has the deepest drawdown
- Election Years are solid but not spectacular
- Post-Election Years are the weakest return year
Why Does the Pattern Exist?
Three plausible explanations:
1. Political Stimulus Cycles
Presidents have an incentive to stimulate the economy in the third and fourth year of their term — just before the next election. Tax cuts, infrastructure packages, expansionary fiscal policy tend to be passed in the second half of the term. This drives Pre-Election Years.
2. Uncertainty Resolution
In the Midterm Year, political uncertainty is highest: the president has lost power, the opposition mobilizes, reforms are blocked or rushed through. More uncertainty = higher volatility = deeper drawdowns. After the midterm election (i.e., from November of the Midterm Year onward), a relief rally typically returns.
3. Self-Fulfilling Prophecy
Many professional investors know the pattern and position accordingly. This reinforces it. If there were no fundamental effect at play, it would "trade away" — but it doesn't, because the fundamental drivers (stimulus, politics) are real.
Tutorial: How to Use the Cycle Yourself
Step 1: Determine Cycle Position
A year's position in the presidential cycle can be read directly from the remainder of division by 4 — i.e., year mod 4:
| `Year mod 4` | Position | Meaning | Example Years |
|---|---|---|---|
| 0 | Election Year | Presidential election year (US election in November) | 2020, 2024, 2028 |
| 1 | Post-Election Year | 1st year of the new president's term | 2021, 2025, 2029 |
| 2 | Midterm Year | 2nd year — midterm congressional elections | 2022, 2026, 2030 |
| 3 | Pre-Election Year | 3rd year — preparation for the next election | 2023, 2027, 2031 |
Example 2026: 2026 ÷ 4 = 506 remainder 2 → Midterm Year. It is the second year of the president elected in November 2024, and in November 2026 the midterm elections to the US Congress take place.
⚠️ Note on convention: Some sources count the Election Year as "Year 4" (end of the term), others as "Year 1" (beginning of the new electoral period). We use here the historically common sequence Post-Election → Midterm → Pre-Election → Election and compute directly via
year mod 4, which is unambiguous.
Step 2: Activate the Cycle Filter in SeasonAlpha
On the Annual Cycle page you will find a "Cycle" filter in the sidebar. Choose from:
- All years (default) — historical average of all years
- Midterm Years only — only years like 2022, 2018, 2014, 2010 ...
- Pre-Election Years only — only years like 2023, 2019, 2015, 2011 ...
The seasonal trajectory recalculates — with the filter you see the actual historical pattern for the current cycle position.
Step 3: Compare with the Overall Average
Do both in sequence: once "All years" and once with the cycle filter. Compare the trajectories. Where are the differences?
For 2026 (Midterm), the typical differences are:
- Deeper drawdowns in spring and summer
- Weaker performance through September
- Relief rally from November onward (after the midterm elections)
Step 4: Adjust Risk Management Accordingly
If you actively trade and take the cycle pattern seriously:
| In Midterm Years | Recommendation |
|---|---|
| Q1–Q2 | Reduced position, higher cash allocation |
| Summer (May–Sep) | High caution, consider hedges (puts, defensive sectors) |
| Q4 (from November) | Scale up — historically the strongest period |
In Pre-Election Years (i.e., 2027), there is more room for more aggressive long positions.
How Reliable Is the Pattern?
Assessment with data:
- Statistical significance: The difference between Pre-Election (+13.2%) and Post-Election (+3.8%) Years over 130 years is highly significant (p < 0.001 in the t-test).
- But: There are massive outliers. 2008 was an Election Year (should have been solid) — the market fell 34%. 2022 was a Pre-Election Year with further weakness.
- The statistical expectation holds for portfolios across many years, not for any single year.
Put differently: you can use the pattern to calibrate your statistical expectation — but never to guarantee a single year's forecast.
What the Next 4 Years Mean Statistically
| Year | Position | Historical Expectation |
|---|---|---|
| 2026 | Midterm | Volatile, weak summer, Q4 recovery |
| 2027 | Pre-Election | Statistically strongest year (+13% avg.) |
| 2028 | Election | Solid (+8% avg.), but election-dependent |
| 2029 | Post-Election | Weakest year (+4% avg.) |
For long-term thinkers: 2027 has historically the best risk-return trade-off. But that is only one data point among many — valuation, macro, and politics need to be added.
Conclusion
The presidential cycle is one of the most robust seasonal patterns overall — statistically significant over 130 years, fundamentally explainable, stable in recent decades. Those who understand it and combine it with other filters (sector, valuation, macro) have a measurable edge in asset allocation.
Try it yourself: Annual Cycle page with the cycle filter, and for a quick overview the Dashboard — the Trading Day Header shows you the current cycle position directly in the top right (e.g., "MidTerm" for 2026).
Further reading:
- Midterm Drawdowns 2026 — How deep did Midterm Years fall historically?
- Sell in May 2026 — What the summer seasonality concretely means
- What Is Seasonality? — Fundamentals article