Thank Joe Biden for the Stock Market's Recent Bounce

Investors who open their 401(k) statements this week may find themselves humming a different tune than usual. Instead of the usual “Ode to Joy,” they may be better off singing “Sweater Weather” or “Hail to the Chief.”
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There are a number of explanations for why stocks have rebounded so sharply over the past few months. These include receding inflation, bets that the Federal Reserve will halt its interest rate hikes, and companies exceeding earnings expectations. One explanation you may not have heard is that it is winter and there is a presidential election next year. This simple explanation requires no expertise other than being able to read a calendar.
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There are two patterns for stock returns that have been shown to be effective, but they shouldn't be. The first is the adage to "sell in May and go away," and the other is the "Presidential Stock Market Cycle." When you put the two together, the difference between the best and worst times to be in the market is significant.
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According to calculations done by Doug Ramsey at Leuthold Group, small-capitalization stocks have averaged negative 2.3% returns from May to October of midterm years over the past 96 years. However, over the following six months, these stocks have averaged positive 19.2% returns. These numbers are not annualized.
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Jeremy Grantham, founder and investment strategist at money manager GMO, believes that the odds of the current market situation being an accident are less than one in a million. He feels that the traditional explanations for both seasonal patterns are no longer as convincing as they used to be, but they are still powerful.
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In the past, when society was largely agrarian, farmers in the Northern Hemisphere would borrow money from banks in the spring and summer to buy seeds and equipment. Then, after the autumn harvest, they would deposit their earnings. Likewise, presidents would often break bad news (such as tax increases) when they were safely between elections, and then unleash pork-barrel spending or make announcements likely to boost stock-market optimism as the next election drew closer.

Nowadays, farmers are a tiny part of the population, and printing presses can create all the dollars, euros, and yen we need. Plus, Washington gridlock makes it difficult to target spending in this way.
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In a recent letter to investors, Mr. Grantham wrote that the pattern's impact on the British stock market has been even stronger than on the U.S. since World War II. He went on to say that the U.S. administration, with the help of the Fed, clearly dominates the global economy.
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There is some evidence that history may repeat itself when it comes to the stock market, which could mean good news for investors. The so-called "Decennial Pattern" suggests that major bear market lows have occurred in years ending in "2" - 1932, 1942, 1962, 1982, and 2002. There are a couple of years that are conspicuously absent from that list, notably 1972 and 1973, but it's worth noting that both of those years saw major political upheaval (Nixon's re-election and the Watergate scandal). If the pattern holds true, we could see another bear market low in 2022.
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As the mutual fund boilerplate says, “past performance may not be indicative of future results.” If one believes that history will rhyme, then one bet to avoid is this season’s rally saying anything about the rest of 2023. Leuthold’s figures show that, in 15 of 25 instances, the subsequent returns from May through October of the third presidential year were negative, no matter how good the preceding six months were.