29 January 2025

Jeff Hirsch on Presidential Market Cycles

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Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Myth Buster· 1

Myth Buster04:04

The Presidential Cycle Is Useful, Not Perfect

Hirsch rejects the idea that the cycle predicts every presidency cleanly. The late-1990s dot-com boom and extraordinary events such as COVID disrupted the usual shape, although he argues that the pattern remains useful over long historical periods.

The late-1990s boom overrode the normal cycle.
Exceptional events can derail cyclical patterns.
The 2021-2024 cycle was described as comparatively textbook.
Long-run usefulness does not imply short-run certainty.

“There's been some derailments. It's not perfect”
Jeff Hirsch · 04:23

“So, you know, not perfect, but it works pretty damn well over the long haul.”
Jeff Hirsch · 04:45

#anomalies#dot-com#covid#market-cycles

Hot Take· 2

Hot Take02:42

Post-Election Years Flipped From Worst to Best After 1985

The historical character of the first presidential year has changed substantially. Hirsch says post-election years since 1985 averaged 17.2%, outperforming the longer-term pre-election-year average, although pre-election years retained the more consistent win rate.

Post-election years were historically considered weak.
Since 1985, they averaged 17.2% with eight gains and two losses.
Pre-election years averaged 15.2% over the cited comparison.
Pre-election years had only one loss, making them more consistent.

“post election years have improved dramatically since World War Two, actually more dramatically since nineteen eighty five, with now averaging seventeen point two percent in…”
Jeff Hirsch · 03:02

“But the pre. Election year only has one loss, even though the average is a little bit lower.”
Jeff Hirsch · 03:22

#post-election-year#market-history#returns#statistics

Hot Take09:21

Political Polarization May Amplify the Presidential Cycle

Hirsch does not think polarization invalidates the four-year pattern. Instead, narrow congressional margins and intense competition may increase the pressure on incumbents to support the economy and preserve their party's control.

Ideological opponents often share more common ground than public debate suggests.
Polarization does not necessarily weaken the historical cycle.
Narrow congressional margins increase electoral pressure.
Greater pressure may intensify incumbent economic intervention.

“I think it might amplify the four year cycle”
Jeff Hirsch · 10:04

“it's more incumbent upon the incumbents pardon the alliteration there to to retain power and to try to keep their party in Congress.”
Jeff Hirsch · 10:07

#polarization#congress#incumbency#politics

Explainer· 4

Explainer01:27

Why Political Incentives Create a Four-Year Market Cycle

Jeff Hirsch attributes the presidential market cycle to incumbents' desire to retain power and make voters feel prosperous before elections. Administrations tend to address less popular policies early and support the economy ahead of reelection, while foreign adversaries may test new governments during their more vulnerable opening years.

Presidents have incentives to improve economic conditions before elections.
Less popular agenda items tend to be pursued during the first two years.
Fiscal and policy support takes time to flow through the economy.
Foreign adversaries may test administrations early in their terms.

“Bottom line, it's about presidents trying to get reelected. They try to make voters happy.”
Jeff Hirsch · 01:32

“they take care of their least savory policy initiatives and agenda items in the first two years.”
Jeff Hirsch · 01:51

#presidential-cycle#politics#fiscal-policy#markets

Explainer05:33

Why the Third Presidential Year Historically Outperforms

The third year benefits from policies intended to strengthen the economy and improve voter sentiment before the next election. Administrations act before the election year because fiscal spending, tax changes, and other interventions need time to affect households, businesses, and markets.

Incumbents seek to secure their legacy and retain party control.
Economic support is deployed before campaigning dominates the election year.
Fiscal spending and tax cuts operate with delays.
The political incentive extends to state-level officeholders.

“they're doing everything they can to secure their legacy, to retain power for themselves, their party, to make voters happy going into the booths.”
Jeff Hirsch · 05:59

“They got to do it ahead of time because they're gonna be campaigning in the election year”
Jeff Hirsch · 06:09

#third-year#pre-election#political-incentives#stimulus

Explainer06:38

The Midterm Year's Weakest Quarters and Historical Losses

Hirsch identifies the second presidential year as the cycle's weakest. The weakness concentrates in the second and third quarters, when his cited averages show declines for the Dow, S&P 500, and especially the Nasdaq.

The second presidential year is the midterm year.
The weakest period is concentrated in Q2 and Q3.
The cited average declines were 2% for the Dow and 2.5% for the S&P 500.
The Nasdaq's cited average decline was 6.6%.

“It's the midterm year, the second year”
Jeff Hirsch · 06:38

“The weak spot is Q two and Q three. The midterm year dows down on an average two percent s and P two and a…”
Jeff Hirsch · 07:14

#midterm-year#nasdaq#sp500#drawdowns

Explainer11:26

How Congressional Midterms Compressed the Four-Year Cycle

Hirsch argues that post-election years improved because administrations now begin preparing for congressional midterms almost immediately. Slim legislative margins make the first presidential year function like a pre-midterm election year, encouraging earlier efforts to satisfy voters.

Congressional midterms have become more consequential.
Slim legislative margins increase urgency after a presidential election.
The first year now resembles a second pre-election year.
Earlier voter-focused action may explain stronger post-election returns.

“I think it has something to do with the compression of the cycle that I've talked about”
Jeff Hirsch · 11:38

“the first year of the term is really the pre midterm election year where they've got to do stuff to make voters happy”
Jeff Hirsch · 11:52

#midterms#congress#cycle-compression#post-election-year

Q&A· 1

Q&A07:34

Do Second Presidential Terms Produce Better Markets?

Second terms have historically been slightly stronger, particularly in the fifth year of a presidency. Hirsch cites an average S&P 500 return of about 9.7% in fifth years while noting that the improvement is most visible in more recent history.

Second terms are only modestly better overall.
The fifth year benefits from a renewed political mandate.
The cited fifth-year S&P 500 average was about 9.7%.
Several older fifth years were weak, while post-1985 examples improved.

“It's a little bit better, not not much term two in term two.”
Jeff Hirsch · 07:43

“You know, we've seen you know, on average about nine point seven percent for the S ANDP in those fifth years”
Jeff Hirsch · 08:03

#second-term#fifth-year#sp500#historical-returns

Takeaway· 2

Takeaway03:28

Hirsch's Base Case: An 8% to 12% Gain With Early Pullbacks

For 2025, Hirsch expected a positive but more restrained equity year. His base case called for an 8% to 12% gain, with pullbacks in the first two quarters and returns below the 20%-plus advances of the preceding years.

The annual outlook was bullish.
The expected gain was 8% to 12%.
Pullbacks were anticipated in the first and second quarters.
Another 20%-plus year was not the base case.

“Eight to twelve percent is my base case, with some pullbacks in Q one and Q two, but you know, not the twenty plus percent…”
Jeff Hirsch · 03:33

#2025-outlook#equities#forecast#pullbacks

Takeaway10:20

The Dow's Remarkable Pre-Election-Year Winning Record

One of Hirsch's biggest surprises was the Dow's consistency in pre-election years. He cites a 20-to-1 record across the relevant historical sample, with no losses from 1939 until 2015 interrupted the streak.

Pre-election years produced an unusually persistent winning streak.
The no-loss run lasted from 1939 until 2015.
The cited Dow record was 20 gains to one loss.
Consistency distinguished the period even when another cycle year had a higher average return.

“The biggest surprise, I think is this the record of the Dow in pre election years of no losses since nineteen thirty nine until twenty…”
Jeff Hirsch · 10:51

“The Dow is twenty and one.”
Jeff Hirsch · 11:07

#dow#pre-election-year#market-history#winning-streak