Politics and Profit: Combining the Presidential Cycle and the January Effect

Meb Faber

Cambria Investment Management

January 1, 2010

CQR, Issue 1, January 2010

Does the intersection of two market anomalies set the stage for outsized performance? The first is what is known as the Presidential Cycle. This theory goes that equity returns during the third and fourth years of a President's term are more favorable than the first two years. A second market bias is the large outperformance of small cap stocks in January. Historically small caps outperformed large caps in 80% of all Januaries by 3 percentage points per year. Historically across the 48 months in the four year cycle the January of Year 3 is the single biggest outperformer with median returns since 1927 of nearly 8% a month for small caps. Does this mean that January is guaranteed to be great? Again, nothing is guaranteed - Year 3 Januaries have varied from 27% to down 10%. While many of these tendencies are just that, investors can view them as head or tailwinds that could give bulls and bears pause.

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Date posted: June 13, 2011  

Suggested Citation

Faber, Meb, Politics and Profit: Combining the Presidential Cycle and the January Effect (January 1, 2010). CQR, Issue 1, January 2010. Available at SSRN: https://ssrn.com/abstract=1862386

Contact Information

Meb Faber (Contact Author)
Cambria Investment Management ( email )
2321 Rosecrans Ave
Suite 4270
El Segundo, CA 90245
United States
HOME PAGE: http://www.cambriainvestments.com
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