We Tested It: The Election-Year Rule

"Buy two years before the election, sell on election day" — checked on S&P 500 data back to 1950: the moved dates, the 2008 crash, the base rate, and the part of the edge that may be real. This free lesson covers: The claim, What do you check first?, Catch one: the dates moved, Find the loser, Catch two: the base rate, Do the base-rate math, The twist: size, not count, So what is the verdict?, The method changes the answer, Put it together.

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The claim

Stanley Druckenmiller has retold a rule from his first boss, in 1976: buy the stock market two years before the US presidential election — at the midterms — and sell on election day.

Viral posts say it "worked every single time". This lesson checks that the way you should check any rule you see online, using monthly S&P 500 data from Robert Shiller back to 1950 (monthly average prices, dividends not included).

Going deeper

More on we tested it: the election-year rule

This lesson is the long form of the election-rule Reel. The rule comes from Stanley Druckenmiller, who has described it as advice from his first boss in Pittsburgh: buy the market two years before the presidential election and sell on election day.

Data: Robert Shiller's monthly S&P 500 series, 1950 – 2024, using monthly average prices without dividends. Cycles run from the midterm month to the election month. Exact-day prices, total return with dividends, or a different index would give somewhat different figures — the conclusions in the lesson held across the variations we tried (October vs November prices).

The election-cycle pattern has been written about for decades — the Stock Trader's Almanac popularised the "presidential cycle" — and a common explanation is that administrations push for a strong economy before re-election. That story may be true, but it is not something this data can prove.

Common mistakes4

Accepting a backtest chart without checking that its dates match the rule.
Counting wins without comparing them to the base rate of a market that rises most of the time.
Ignoring the worst case: one cycle in twelve lost about 29% — recovering from that takes a gain of about 41%, more than a typical winning cycle made.
Treating 19 data points as proof. A pattern this rare cannot be confirmed quickly.

From experience3

For any rule, write down three numbers: the win count on the stated dates, the base rate, and the worst loss.
Compare average or median returns, not only win counts — the size of the moves is where a real edge would show.
Ask what the rule would have cost you in its worst cycle, and whether you would have held through it.

Questions people ask2

So should I buy at the midterms?

This lesson is not advice to buy or sell anything. The data suggests midterm-to-election has been the stronger half of the cycle on average, with large exceptions. Whether that matters to you depends on your timeframe and how much drawdown you can hold through.

Does this apply to US30?

The test used the S&P 500, which has far more history in Shiller's data. The Dow tends to move in the same direction over two-year periods, but the exact figures would differ.