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3 Charts Explain Why 2022 May Be a Bad Year for the Stock Market
Watch out for ‘year 2’ of the presidential cycle, interest rate increases, and an inflated CAPE
I thought I’d get a jump on the stock market outlook for 2022. I’ve previously written about why most stock predictions are useless. One reason is that many are wishy-washy. So instead, I’ll make a specific prediction, and back it up with data: I predict the level of the S&P 500 index on December 31, 2022 will be lower than on December 31, 2021.My confidence of this prediction being right is about 60 percent (I’ll explain why later), so in my mind it’s not a sure thing that the market will decline, but it’s probable. There are three simple reasons why I think 2022 — the year of the tiger, a symbol of strength — may be a bad one for the stock market, particularly in the U.S. Since I like data and charts, I’ll explain my evidence-based reasoning in three simple ones.
Reason 1: ‘Year 2’ of the Presidential Cycle Isn’t a Good One
There has been a lot of research in the last four decades examining the relationship between stock market returns and U.S. presidential cycles. If we define ‘year 1’ as starting on January 1st following a November presidential election, then average returns in years 1 and 2 are lower than average returns in years 3 and 4. Indeed…