For more than fifty years, stock prices have soared during election and pre-election years. This indicates that market growth, at least in the short run, is directly related to the presidential election cycle. Not since World War II has the market experienced a negative pre-election year. The simplest explanation of this phenomenon is that U.S. presidents tend to increase spending or cut taxes in the third year of their presidency in order to stimulate the economy and increase their chances for re-election.

Typically, the stock market does pretty well during election years no matter who wins, but market growth is especially high when there is an incumbent running for re-election. This is because investors don't like uncertainty; the incumbent provides hope for continued prosperity. When the incumbent has a very low approval rating, market growth is still likely to occur since investors are optimistic about the prospect of a new presidential administration.

Historically, analyzing market fluctuations during the three-month period before presidential elections shows a steady increase in market growth as we move closer to Election Day. In fact, within the past 112 years, there have been only three instances in which, during this three-month period, the Dow failed to hit or come within 5 percent of the year's high.

While there is definitely a strong relationship between market performance and the election cycle, it is generally unwise to adjust your investment strategy based on market movement within an election year. Elections are short-term events, and investment decisions should be based on long-term strategies.