Is the President's Third Year a Charm for ETFs? | ETF Trends

Money strategists, analysts and investors all try to pinpoint signs of up or down trends in markets and exchange traded funds (ETFs). Could the political climate be one of those bullish indicators?

Nilus Mattive for Money and Markets argues that the political climate may favor a bullish market for 2011. Mattive uses S&P 500 market data spanning to 1928 that compares how various political climates affected market returns in what he calls “Presidential Cycles.”

To sum up his findings, the third year of a presidency is historically a favorable one for the markets – data indicates that on average, the S&P 500 gained 14.12%, and average gains were 17.7% under a Democrat party leader. From 1945, the Dow Jones Industrial Average has gained on average 19% during a first-term president’s third year. [Will Broad Market ETFs Set New Records in 2011?]

  • SPDR S&P 500 ETF (NYSEArca: SPY)
  • SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA)

By the third year, the markets usually have enough time to adjust to the administration’s policies and the helpful policy changes start to kick in. Additionally, the uncertainty surrounding mid-term elections has ended by then.

On the downside, Congress is divided as a result of the most recent elections. This has the potential to lead to gridlock and further slow growth in the economy. It’s going to be interesting to watch the government this year – how well will Obama do in his third year? Will Congress finally learn to work together?

Despite the bullish calls, the truth will only be known later. As you proceed this year, have a strategy to act on what’s happening – not what people think will happen.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.