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Why Midterm Election Years Are Tough for the Stock Market

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These efforts often contribute to strong stock market returns leading up to presidential elections, when it is in presidents’ greatest interest to stimulate the economy.

In the first half of a presidential term, however, when the White House and Congress get down to the mundane business of governing, there is frequently a compelling need to pare down government spending or to encourage (substitute “pressure,” if you prefer) the nominally independent Federal Reserve to raise interest rates and restrict economic growth. The best time to inflict pain is when a presidential election is still a few years away, or so the theory goes.

As Mr. Hirsch told me back then, it’s good politics “to get rid of the dirty stuff in the economy as quickly as possible,” an exercise in fiscal and monetary restraint that tends to depress stock market returns in the second year of a presidential cycle.

That would be where we are now.

Through March,…

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