After completing a study about 10 years ago, we learned that combining the Sell in May and Go Away anomaly with the Presidential Election Cycle effect yields some phenomenal results, as each effect gets amplified. When looking at seasonality this way, it is apparent that the most important time in the market is where we are now.
The May to October period in year Two has the worst record, which gives way to the best period, the November to April period that begins in year Two and ends in year Three. This November to April period has a median simple return of 16% since 1930. There hasn't been a negative return for this six month sweet spot in the election cycle since 1950.
Another great tidbit related to this insight comes straight from Stock Trader's Almanac - "Since 1914 the Dow has gained 49.2% on average from its midterm election year low to its subsequent high in the following pre-election year. A swing of such magnitude is equivalent to a move from 8000 to 12000 or from 10000 to 15000."
Mark Dodson, CFA