Conclusions:
● The second year of a President's term (2006) is the most unpredictable.
The third year of a President's term (2007) is the most profitable.
Investment funds should be available to invest in 2007.
Terminology:
Post Year - The first year of a president's term (the year after his election).
Midyear - The second year of a president's term.
Pre-Election Year - The third year of a president's term (the year before a presidential election).
Election Year - The final year of a president's term (the year of a presidential election).
Maximum Draw Down- Loss incurred at the lowest point during the year, since the previous year's close.
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Presidential Election Cycle: S&P 500 1950-2005
Average Annual Return
3%
5%
19%
9%
31%
45%
34%
26%
-17%
-30%
2%
-10%
-27%
-36%
-9%
-14%
Best Annual Return
Worst Annual Return
Maximum Draw Down
Summary: The post year was the worst year, averaging 3%. The pre-election year was the best,
averaging 19%.
The second two years of the presidential term (pre-election and election
Years) have tripled the return of the first 2 years.
(See the average annual returns above.) There
was not a single losing pre-election year in the entire 55 year test period (1950-2005).

2006:
2006 is a midyear. Midyears have been mediocre (averaging 5% / yr). They are the most
unpredictable of all the four years of this political cycle.
The midyear holds the record for both the
best and worst annual performance (45% and -30% respectively).
 Midyears also have the
most severe intra-year draw down at -36%. The last midyear was 2002 which lost 23%, the second
worst midyear since 1949. 2002's maximum draw down was -32% on October 9th.

Plan Ahead for 2007:
The midyear has been the most likely year to deliver stomach churning declines. They also provide
profitable opportunities to invest near a bottom, just before the typical pre-election year bull market. If
you are fully invested at the beginning of a midyear, you will not have that opportunity.
Consider
reserving substantial funds to invest near the beginning of 2007 (pre-election Year).

Somehow, turmoil tends to surface during midyears... only to be substantially resolved before the
coming presidential election. All may appear to be calm at the present. However, the 55 year record
urges caution for 2006.
The Presidential Election Cycle Suggests a Volatile 2006
Strategy Research: Summary, Analysis and Long Term Test Results

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