Further studied this and looked at rate increase / recession impact.
First question I asked: if I assume a recession is around the corner, should I still expect a market recovery starting from a mid-election year. Unfortunately during the past 40 years, there has never been a recession which began after the mid-election year rally started. So I can’t refute the theory that this pattern could repeat despite a recession (or otherwise). There had been a number of instances where a recession had already started before entering the mid-election year but I don’t think it counts as the market could have been anticipating the end of the recession thus started to bid up stock prices. To me this question remains unanswered. Having said that I don’t know if a recession is coming in the horizon anyway.
Second question I asked was whether the rate hikes since ’04 could have stopped this pattern from repeating. Since 1962, there were four instances where rates were increased before the mid-election year. They were 1966, 70, 74, and 78 and a nice recovery followed each of these mid-election years (+33% in 9 months from the low point in 66, +51% in 11 months from 70, +53% in 9 months from 74 and +22% in 6 months from 78).
But each of these were also preceded by a sizable market drop which I believe set up the subsequent rebound. In 1966, it took 9 months and a 22% correction to reach the low point in 1966, 17 months and 36% drop for 1970, 21 months and 48% drop for 1974, and 14 months and 20% drop for 1978.
We still have a few months before winter. If this pattern were to repeat, it perhaps means there ought to be a rather sizable correction over the next month or two.
I also want to look at market PEs but don’t know where to get historical PEs for the market. Anyone got a link for me ?