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