Another bit of good news is that the market is shifting into the 3rd year of the Presidential cycle. At Quantifiable Edges I measure the Presidential Cycle years from November – October rather than January – December. That allows the cycle years to better match up with the elections, which take place in early November. And while the elections are always during the 1st week of November, I always start the cycle year on November 1st. This makes for easy evaluation when combining it with the “Best 6 Months” cycles. In general, the 3rd year of the Presidential Cycle has been a strong one.

When the Best 6 Months and the 3rd Year of the Presidential Cycle have been active at the same time, the results since 1950 have been outstanding. In the table below I have listed out each instance.

All 19 instances since 1950 have shown gains. Of course there have been drawdowns along the way. The 1974-75 period saw SPX pull back 13.2% from its October closing price before rebounding and finishing April 18.1% above the October closing price. And in 2018-2019 there was a 13.5% drawdown from the October close before finishing April 8.6% above it. But overall the stats have been incredibly lopsided. The average full 6-month period saw a net gain of 14.79% and a median gain of 15.24%. Long-term seasonality does not get any better.

Much more information on these indicators and others can be found in the Quantifiable Edges Market Dynamics course. While that course can be purchased on its own, it is also available free with any annual gold subscription to Quantifiable Edges.

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The Correlation Tool can be accessed under Extras -> Correlation Tool for anyone that is logged in to the site. Free access simply requires a login (name & email). Signup here.

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After down closes in both June and July. August has generally been a toss-up. Sometimes it got a bit of a rebound and sometimes it didn’t. But regardless of whether August rebounded or not, September numbers look pretty terrible. Eleven out of the thirteen Septembers closed lower and many of them by sizable amounts. This seems worth keeping in mind while we consider other intermediate-term evidence that emerges over the next 3-4 weeks.

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The Correlation Tool can be accessed under Extras -> Correlation Tool for anyone that is logged in to the site. Free access simply requires a login (name & email). Signup here.

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The Correlation Tool can be accessed under Extras -> Correlation Tool for anyone that is logged in to the site. Free access simply requires a login (name & email). Signup here.

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The Hypothetical Correlation Tool lets you define a handful of “models” (each just an expected return and a volatility), choose how correlated they are, decide how much of each to hold, and then watch a Monte Carlo simulation play out thousands of hypothetical futures. It reports the blended portfolio’s compound return, volatility, Sharpe ratio, and worst drawdown, draws the growth of $10,000, and even shows you which models to overweight or underweight to maximize risk-adjusted return. Here is a quick look:

A few things you can explore in about two minutes:

• Drag a correlation slider from +1 toward −1 and watch a blend’s volatility melt away while its return holds up.
• Flip on “crisis correlation” to see why diversification tends to fail exactly when you need it most.
• Hit “new draw” a few times to feel how much any single backtest is just luck.
• Check out the “User Guide” (button top right) for more detailed instruction on how to use the tool.

Note: These are not real returns and not a forecast of any strategy. Every number it produces is a hypothetical simulation generated by a mathematical model, for educational purposes only. It’s built only to illustrate the mechanics of diversification and correlation.

I’ll be doing series of posts and short demos where I will use the tool to walk through specific ideas. These include the rebalancing bonus, the limits of diversification in a crash, and the math of leverage. I hope you like the tool. Stay tuned for the first few mini-demos!

To access the tool you simply need to login to Quantifiable Edges. (Even an old expired trial will work.) Once logged in, simply look for the Correlation Tool under the “Extras” menu item. If you don’t have a Quantifiable Edges login, you can sign up for the Correlation Tool (free) here.

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With 23 of 25 instances closing up the next day, there has been a strong bullish inclination. And the line going from lower left to upper right is extremely straight. This is the first time this study has triggered since 2024, but I’ve liked it for a long time and it’s always on my radar.

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There was no substantial edge apparent throughout the 70s, but starting in 1983 through 2009 there was a substantial bullish tendency. The last 16 years this week has seen more of a struggle. But there remains one day during Memorial Day week where the upside tendency seems to have persisted. That day is Thursday.

A 70% win rate and a strong, steady move higher suggest Thursday looks like a pretty good day from a seasonal standpoint. Traders may want to keep this in mind for later this week.

Related Quantifiable Edges Studies

• An updated look at Thanksgiving Week Stats
• The Reversal Tendency of Labor Day Week
• Will Tomorrow Be Another Bullish Holy Thursday?
• Twas 3 Nights Before Christmas (Russell 2000 version)

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Shaded rows are those instances where there was less than a 20% drawdown at the start of the rally. The current instance saw one of the shallower drawdowns. Only 1955, 1976, and 1982 saw rallies that were not coming out of larger drawdowns than the current one. After such strong rallies whether they were bear or non-bear, the next month generally did not see much progress. But longer-term results were quite impressive. After the 19 prior 6-week rallies, SPX averaged +18.8% over the next year with a 94.4% win rate, versus a +9.4% / 74.5% baseline. Below you can see the signal versus the baseline numbers.

Signal vs baseline forward returns (top 20 rallies)

Lastly a little graphic showing the one-year forward returns after each of the 6-week rallies:

So the momentum over the recent six-week period seems to be positive. We’ve seen this other ways but I thought this was an interesting look. Also impressive is that looking at the eight non-bear instances the average drawdown was only 8.29%, while the average run-up was 18.96%. There are certainly risks out there, but strong moves like we have seen recently tend to be a positive over the intermediate and long term.

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