The new year is only 6 weeks old, but my year end target of 3,500 for the S&P is already looking too low.
Yes, it’s true that many years start hot, then cool off in a big way. So my target could prove to be right on the money. But a piece of news just came across the wire on Friday that has me seeing that the upside for stocks could be much greater than previously understood.
Let’s dig in on that topic and how it might boost the results for stocks the remainder of the year.
The Presidential Election Cycle Theory
Market historians love to review past patterns to find an edge for their stock trading. A great example of that is the “Sell in May and Go Away” theory that points out that almost all the stock market gains the past 70 years has happened between November and April. Meaning that once May rolls around it might be time to head for the hills.
(IMPORTANT NOTE: Before we go further, it’s important to realize just how often these patterns don’t hold true. For example, over half the time the May to October time frame actually produces ample stock market profits. So you have to be careful when trading off this type of information.)
Now we come around to the news that came out on Friday February 14th: White House considers tax incentive for more Americans to buy stocks
The short version is that the Trump administration is getting geared up with some pro-growth ideas that should excite the voting public. Not only are they considering a new $10,000 a year tax free stock investing account, but also an array of tax cuts.
This type of move is straight out of the Presidential Election Cycle playbook. The basic idea is that the second half of a President’s term is focused on getting re-elected. This leads to proposals that pump up the economy and stock market which voters look upon favorably.
The one hiccup in this pattern is that the market usually falters a month or two before the election. That is because the closer the election results appear to be…the muddier the outlook becomes…the more that investors pullback awaiting the outcome.
This hiccup helps explain why year 3 of the Presidential Cycle is the most profitable with year 4 coming in second place. But 2nd place is not so bad. Especially if these new ideas help get more individual investors active in the market (note the participation rate for individual investors is still well below the 62% level before the Great Recession).
What to Do Next?
There were already enough reasons to be bullish in 2020. That’s where you have solid economic growth ready to accelerate thanks to China trade deal being ironed out. On top of that is how attractive stocks look in a world of low bond yields. Add it together and we have enough reasons to be bullish.
However, if the Trump administration continues to read from the Presidential Election Cycle script, then it might spell even more attractive gains this year. Your investment game plan should be to continue to lean into this bull market by owning shares with the best odds to outperform. That is exactly what you will find in these recent commentaries on StockNews.com. Enjoy!
Wishing you a world of investment success!
…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network, Editor of the Reitmeister Total Return
SPY shares . Year-to-date, SPY has gained 4.89%, versus a 4.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...
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