Unfortunately, according to The Almanac Investor, this coming year doesn't look too promising. However, the next few years after that hold a lot of promise. Also, the fact that Obama is a Democrat is also a plus for the stock market—as counterintuitive as most Republicans think that sounds. Let's take a look at how the following affect the Dow Jones Industrial Average—on average: - Post-election years - Second half of the presidential term - Democrats vs. Republicans To learn more about the Presidential Cycle and how you can trade it using covered calls—a popular option trading strategy, check out What Affect will the New President have on the Markets? Post-Election Year Historically, the Dow Jones Industrial Average has had its lowest annual rate of return during the first year of the presidential term than during any other. During the first year of a presidential term, the Dow Jones Industrial Average has only risen by an average of 1.6 percent. Of course, this is just an average, not a guarantee. During the first year of President Reagan's second term, the Dow Jones Industrial Average climbed an impressive 27.7 percent, and during the first year of President Clinton's second term, the Dow Jones Industrial Average climbed 22.6 percent. Conversely, during the first year of President Reagan's first term, the Dow Jones Industrial Average fell 9.2 percent. The year after the election, most presidents are keen to use the political capital they garnered during the election to try and make changes to various policies and keep campaign promises. While some of these policy changes may be viewed positively by Wall Street, many of them are not. Let's take a look at three of President-Elect Obama's campaign points and see how they might affect the stock market. - Tax cuts for the middle class: Tax cuts for the middle class should be a positive for the stock market as consumers—who make up 70 percent of the U.S. gross domestic product (GDP)—will have more money to spend. This should, in turn, increase corporate profits and corporate returns—which is always good for stock prices. - Healthcare reform: Healthcare reform is a mixed bag when it comes to affecting the stock market. Healthcare reform could reduce profits for many insurance companies and some healthcare providers. This would decrease the value of their respective stocks. On the other hand, healthcare reform may leave more money in consumers' pockets, which should stimulate the economy. - Raising capital gains tax: Raising the capital gains tax would most likely have a dampening effect on the stock market. The capital gains tax gives investors who hold their investments for longer than one year an advantage on their taxes when they end up selling the stock. Currently, the long-term capital gains tax rate is 15 percent. If you are in a 25-percent tax bracket, this gives you a 10-percent savings (25% - 15% = 10%). Taking away the benefit of a lower long-term capital gains tax removes the incentive for many investors to hold onto their investments for the long-term, and an increase in short-term trading has proven in the past to be detrimental to the value of the stock market. Article continues on the next page... Page 1 | Page 2 | Video  To learn more, click here to watch the video on Will Obama Help the Stock Market?.
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Presidential Cycle Video
