Emerging Markets and the U.S. Election Cycle

  • SumoMe

It is widely known that the four-year U.S. Election Cycle has an influence on the U.S. stock market.  What is not so widely known is that other markets also seem to “walk to the beat”.  Take for example “emerging markets.”

The Test

For testing purposes we will use the MSCI Emerging Markets Index (Gross Dividend) Monthly Total Return from the PEP Database from Callan Associates starting in January 1988.

The ETF ticker EEM (iShares MSCI Emerging Markets ETF) started trading in May 2003 and can be used for trading purposes.

The EEM Election Cycle Calendar

Figure 1 displays my Emerging Markets Election Cycle Calendar. During months marked EEM, the Emerging Markets Index is held.  The same months are used over the course of each 4-year cycle.

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Figure 1 – Jay’s Emerging Markets Election Cycle Calendar

To be clear, during each post-election year in the U.S. (i.e., 1989, 1993, 1997, etc.) we would hold the Emerging Markets Index during the months of January, April, May, July, September, November and December.  During all other months during that year we would NOT hold the Emerging Markets Index.

Figure 2 displays the growth of $1,000 invested in the MSCI Emerging Markets Index (actual results using EEM will likely be slightly lower due to ETF fees) ONLY during the months marked EEM during every 4-year U.S. presidential election cycle starting in 1988.2Figure 2 – Growth of $1,000 invested in MSCI Emerging Markets Index ONLY during Favorable Election Cycle Months; 1988-2107

Figure 3 displays the growth of $1,000 invested the MSCI Emerging Markets Index ONLY during the months NOT marked EEM during every 4-year U.S. presidential election cycle starting in 1988.3Figure 3 – Growth of $1,000 invested in MSCI Emerging Markets Index ONLY during non-Favorable Election Cycle Months; 1988-2107

For the record:

*$1,000 invested in the “favorable” months grew to $145,908 (+14,491%)

*$1,000 invested in the “other” months declined to $166 (-83%)

Figure 4 displays a few comparative values between holding the emerging markets index during the “Favorable” versus “Unfavorable” months.4

Figure 4 – 12-months returns for Favorable versus non-Favorable Months; 1988-2017

Summary

So is the calendar displayed in Figure 1 guaranteed to generate profits ad infinitum into the future?  Not at all. But the results displayed herein do suggest that there just might be something to this whole 4-year cycle “thing”.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

 

 

 

2 thoughts on “Emerging Markets and the U.S. Election Cycle

  1. Hey Jay, pretty impressive results there.
    Can I ask what are you looking for specifically in determining whether or not to hold a calendar month? some significant outperformance over a usual month? Certain % of accuracy in that month?
    Only reason I ask is that I am primarily a small futures trader and believe some similar such models could be created on commodity products to take advantage of seasonality.
    Look forward to your thoughts
    Cheers
    Ben

    1. Ben, No hard and fast rules – just looking to see if any months within the 48-month cycle consistently deliver profits. Haven’t looked too closely at commodities but would not be surprised if there is something there. Have found applications with stock indexes, treasury bonds, gold stocks, financial stocks, real estate stocks and emerging markets. Jay

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