Optimized Monetary and Calendar Market Timing

In monetary market timing, we saw a system that combines the direction of interest rates and the 4 years of the US presidential cycle. This system called for being completely out of stocks during the year 2 of the presidential cycle.


A reader suggested an improved model by investing in stocks during a specific period of the year 2.

Best 3 months to be in the Stock Market

The following table shows how the Stock Market performed over the last 3 months of the year. The results are provided for every year of the presidential cycle.

Presidential Cycle Year Average Returns Standard Deviation Positive Year Min Return Max Return
1 2.5% 6.5% 71% -10.0% 16.0%
2 7.8% 6.6% 87% -6.3% 20.9%
3 2.6% 8.7% 67% -23.2% 14.5%
4 2.3% 8.2% 87% -22.4% 8.9%
S&P500 returns from 1st October to 31st December (1950-2008, Dividends excluded)

Can you see the returns in year 2 ? Just investing over the last 3 months of the year 2 provides truly outstanding returns: the average returns are greater than the standard deviation.


For comparison purpose, below is recalled how the S&P500 performed when investing over the entire year.

Presidential Cycle Year Average Returns Standard Deviation Positive Year Min Return Max Return
1 3.2% 17.6% 50% -17.4% 31.0%
2 5.9% 21.4% 60% -29.7% 44.2%
3 17.9% 9.6% 100% 2% 34.1%
4 6.1% 15.5% 80% -38.5% 25.8%
S&P500 returns from 2nd January to 31st December (1950-2008, Dividends excluded)


Now, we have a plan for investing in year 2 of the election cycle and can complete our optimized model.

Optimized Monetary and Calendar timing

The only modification from the original model is in Year 2.

- Year 1: invest in stocks if interest rates were dropping 12 months ago
- Year 2: invest in stocks from October 1st to December 31st
- Year 3: invest in stocks
- Year 4: invest in stocks


Presidential Cycle Year Condition Average Returns Standard Deviation Positive Year Min Return Max Return
1 Decreasing Rates 5.5% (*) 12.4% 93%-11.5% 31.0%
2 1st Oct - 31st Dec 7.8% 6.6% 87% -6.3% 20.9%
3 Entire Year 17.9% 9.6% 100% 2% 34.1%
4 Entire Year 6.1% 15.5% 80% 38.5% 25.8%
Total   9.4% 12.3% 90% -38.5% 33.1%

(*) The returns for Year 1 are 0% when interest rates are increasing, hence the seemingly low average returns.


This system beats Buy and Hold and many other timing systems. You can check the market timing performances table.


Finally, check Stock Picking & Market Timing to see how you can improve your investment returns by combining Stock Picking and Market Timing.

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