This year has shown some extreme movement, but we are not that far off historical averages for performance in the first half of the first year of the last 25 presidential terms.
Global markets have been on a rollercoaster ride of performance throughout the first half of 2025. The S&P 500 Index (SPX) rose notably in January, then fell for two straight months to drop nearly 5% in the first quarter. That has been followed by a rapid ascension since mid-April, as the index has risen by just over 6.5% so far in the second quarter (3/31/2025 – 6/13/2025). Meanwhile, international equities have been a surprising stalwart throughout 2025, helping that asset class climb into the top spot in our DALI rankings last week. We’ve even seen physical gold and “digital gold” (bitcoin) eclipse fresh highs throughout the last few months. At this point it is fair to assume anyone’s bingo card of potential events heading into the year can just be tossed in the trash.
Maybe the only thing that could have been anticipated was the increased attention from market participants on the President of the United States. We even made some comments to this end on our podcast late last year, discussing how we would soon be waking up to check social media posts to figure out which way the market was heading on a particular day. Sometimes this benefits investors, and other times investors blame certain actions for prompting weakness/volatility. Regardless of political views, it is pretty clear that our current Commander-in-Chief seeks the spotlight. This prompted a question of how that increased attention has affected market action? How does the first half of this year stack up against the first half of year one in other presidential terms?
The short answer to that question is we have seen more extreme movement than normal in the first half of this year, but that movement has been directionally in line with historical norms. We ran the numbers on S&P 500 performance during prior presidential terms, separated out quarterly. The average SPX return in the first quarter of any presidential term going back to 1929 sits slightly in the red at -0.51%. The performance during the second quarter typically shows substantial improvement, climbing to an average of 5.68%. Again, these are just looking at the last 25 first years, including this year. However, the second quarter of year one averages to be the second-best performing of any quarter during the entire four-year presidential term (behind only Q1 of year 3).
While this year’s movement has been more extreme, we did see losses in Q1 followed by a sharp rally in Q2. Another important point to note is that the performance for the rest of the year typically becomes much more muted after the run up in Q2. Each year is different, and we know that the actual market action rarely falls directly in line with historical averages. With that said, we are about 3% behind the average performance in the first half of the first year of a presidential term, but we are still in the black for the first six months (through 6/13). A lot can happen over the course of the next two weeks. Assuming this holds, it would mark only the third instance in the past 25 presidential terms that saw SPX post a loss in Q1 of year one and bounce back strong enough to finish the first half with a gain (1933 and 2009).
As mentioned earlier, the performance for the third and fourth quarter of year one is typically much more muted, averaging slight gains below 1%. While the magnitude of the improvement is often not as pronounced in the second half of the year, the actual percentage of positive performance does continue to rise as the year progresses. We see Q1 show a positive hit rate of just 52%. That improves to 60% for Q2, then 62% in Q3 and goes all the way to 70% by Q4.
The data also shows a difference between republicans and democrats for their first year in office. There have been 12 years (including 2025) with a republican in the white house, and 13 with a democrat. Republicans actually average a slight loss over the full year one, while democrats show a double-digit average gain. Although the small sample size created by cutting the list in half allows for some large outliers, like the 86% returning quarter seen in Q2 of 1933, to skew things more heavily in favor for democrats.
The final graph we will examine helps put some of these numbers in a different perspective. It shows how extreme the movement earlier this year has been relative to historical norms, but also how we have arrived at a pretty similar location to where we “normally” would be. The blue line in the graph below examines a hypothetical portfolio growth of $100 using the average daily return from the first year of the past 25 presidential term years. So, the day one average includes the first trading day of 2025, 2021, 2017, etc. We then use those average daily returns to calculate what the average movement for a portfolio would be for year one in its entirety. The red line shows the hypothetical portfolio growth of $100 during the current presidential term. We can see the red line spiked above the blue for the first 30 days, then moved sharply lower before bouncing back. Even though the hypothetical average is still above our current position, the red line has just about caught back up.
If the beginning of this year was any indication on what we should expect for the second half of 2025, it is highly unlikely that we see the red line just track the blue line moving forward. Each environment is different, and the current one certainly feels especially unique. However, historical performance tendencies would suggest a higher likelihood for more muted but positive action in the coming months. Luckily, we don’t have to just rely on historical tendencies. The technical perspective offered by the tools and indicators throughout the NDW platform offer a process-oriented approach toward portfolio management. The key word there being process. Times of uncertainty are when that process becomes the most important, so be sure to set alerts on your indicators of choice.
