The presidential election cycle indicator isn't one of those coincidental
market barometers like the one that purports to predict how stocks will fare
in the coming year by looking at the winner of that year's Super Bowl. A
victory by the National Football Conference champion supposedly presages a
bullish year for stocks, while an American Football Conference victory
presages a decline. As measured by the Dow, this uncanny indicator has been
correct 30 out of the past 37 years for an 81 percent success rate. Last
year, the NFC's Tampa Bay Buccaneers beat the AFC's Oakland Raiders and
voila!, the market finishes in the black. Of course, what happens on the
field has no discernible effect on earnings, interest rates, inflation, or
much other than the personal income of fans in office betting pools.

Not so with the election cycle indicator. "There is definitely something
there," says investment strategist William Rhodes. "The theory is that to
get re-elected, presidents will boost spending or cut taxes in the third
year of their term to give the economy a lift. It makes a lot of sense."
Which is exactly the script followed by the current resident of 1600
Pennsylvania Avenue.

The stronger economy usually leads to higher stock prices. Since World War
II, the stock market has posted an average annual return of 9.5 percent in
the first year of presidential terms, 8.1 percent in the second year, 21.3
percent in the third year, and 12.2 percent in the fourth, or election year.
Similarly, nine out of 13 recessions since 1929 have begun in the first year
of a presidential term, seeming to support the theory that presidents try to
get bad news behind them as quickly and as early as possible in their term.
This time around, the recession officially began in March 2001, two months
after Bush took office, although he has claimed to have inherited it. Last
May, Congress passed a $350 billion tax cut to boost the economy. In
addition, spending continues to rise, creating an estimated $480 billion
budget deficit this year.