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Invest In Equities in 2011? The Presidential Pattern.

Despite our massive and growing deficit,  and the ongoing tax turbulence, there seems to be a fairly “feel good” consensus about the potential for the stock market in the coming year.  Consumers seem to be more upbeat and are opening their wallets, companies are flush with cash, there are still many reasonably valued companies to buy, and interesting new technologies are starting to hit the market.

Though most predictors of market performance have about the same batting average as retarded monkeys throwing darts, it is interesting to note that most see good things ahead.  My unofficial tally of analysts I follow predict S&P gains at anywhere from 6% to the 20% range in the coming year.

Investment Gurus are always looking for a pattern to aid in their predictions, and one of the most consistent has been the “Presidential Pattern”, which tracks the market performance against the current President’s year in office.  This has remained amazingly consistent, regardless of the party of the President.  Obama is entering his third year, and historically this is the best year in the cycle.  I suspect the significance of the third year is that investors have lost their jitters over what a new President might do that would negatively impact the market. Since 1945 the S&P has increased an average of 17% during this third year, and their has never been a decline during this period since World War II.

Of course, we live in weird times where terrorists and undisclosed debt can quickly tank the stock market, but with those kind of risks in mind this seems to be a good time to jump back into the market.

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