Is It Different This Time?

Tyler Durden's picture

If history is a guide, the rest of the year is destined to be a winner. As Barclays points out, thew typical election-year cycle is a first half of range-bound trading followed by a second half of acceleration higher. 2012 has followed this pattern but on a much higher beta scale, with the current year's performance more than 50% above typical election-year full-year performance. Of course, we have never had a debt-ceiling and fiscal cliff debacle that needs to be resolved between the election and year-end. What's more interesting to us, given the surge in P/E multiple expansion driven by central-bank largesse, is that P/E multiples have contracted notably in the latter half of election years in the last 40 years.

 

The Dow's performance in election years since 1900 (and the 2012 performance so far...)

 

But it is different this year - P/Es have exploded relative to normal election years...

 

The last 40 years have seen multiple contraction in the second half of election years...

So when your long-only manager says - you have to buy because of the election year cycle, maybe ask him about the election year 'valuation' cycle

Sustainable? Ask Ben and Mario...

 

Source: Barclays and Bloomberg