Financial Planning Fridays #172: Year Two of Our Presidential Cycle
This Financial Planning Friday reviews a volatile first year of President Trump's second term, including a nearly 19% springtime drop in the S&P 500, and looks ahead to year two of the presidential cycle. Jerry Davidse cites historical averages showing year two has been the weakest and most volatile of the four-year cycle, and explains why a diversified, rebalanced portfolio is built to handle it.
This Financial Planning Friday reviews a volatile first year of President Trump's second term, including a nearly 19% springtime drop in the S&P 500, and looks ahead to year two of the presidential cycle. Jerry Davidse cites historical averages showing year two has been the weakest and most volatile of the four-year cycle, and explains why a diversified, rebalanced portfolio is built to handle it.
Key takeaways
- Since 1952, the second year of a presidential term has averaged just a 3% market return, the weakest of the four-year cycle.
- Past performance does not guarantee future results, but year two has also historically been more volatile, with average declines near 12.4% versus 9.1% in year one.
- Since 1970, international stocks have averaged roughly double the U.S. market's return during a presidency's second year.
- Having short-term reserves and a rebalancing plan in place can help investors respond to a pullback rather than be forced to sell at lower prices.
Hi friends. As we wrap up the first year of President Trump's second term, it's been quite a ride for the markets. It's been a volatile year. Earlier this year, the S&P 500 was down nearly 19% in April after the tariff announcements. And yet, here we are today, sitting very close to all-time highs. This chart compares the market's path in 2016, the first year of Trump's first term, with 2025, the first year of his second. As you can see, the return for the year is on track to be very similar, but with very different paths. This year was much more volatile.
So the natural question is, what about next year? We're now heading into year two of the presidential cycle, and historically that's been the toughest year for stocks. Since 1952, the average return during the second year of a presidency has been just 3%, the weakest of the four years in the presidential cycle. It's also been more volatile than the first year, with an average temporary decline of about 12.4%, compared to 9.1% in the first year.
So what should you be thinking as we head into 2026? First, make sure you have a plan for when, not if, markets pull back. Are you prepared to add to stocks when prices fall, and do you have enough short-term reserves to draw from so you don't have to sell investments at lower prices? Second, look beyond just U.S. stocks. Since 1970, international stocks have averaged double the return of the U.S. market during the second year of the presidential cycle. That's a great reminder of the importance of diversification, owning a mix of asset classes and regions.
No one can predict exactly what next year will bring, but we can be confident that volatility will likely return. And at Presilium, that's not something we fear, it's something we plan for. Our well-diversified portfolios and rebalancing strategy are designed to help you take advantage of those market swings rather than be hurt by them. Thank you, and I look forward to talking with you next Friday morning.
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