Just like every other election year, we're due for an April-May pull-back in the markets and a rally from June through August, argues Bank of America Merrill Lynch analyst Stephen Suttmeier in a note published today.
The market is in a "confirmed correction" right now, he writes, but just like every other election year, this will turn into a full-blown rally come summer:
On average, the April-May period is the weakest two-month period for the Presidential election year and this is followed by the strongest three-month period in June-August. This supports the case for buying on dips, and diverges from the non-Presidential election year and average seasonal patterns.
The market direction for the Presidential election year in the April-August period is similar to the 2 Year of the Decennial Pattern, which also supports the case for a correction into late spring/early summer, ahead of a summer rally.
According to average monthly data for election years appears to also predict a slight market pullback in September and October after a strong summer rally.
election year versus normal year market data
Bank of America Merrill Lynch
Admittedly, 2012's rally is a little bit off the scale, with movements since March looking more dramatic than a typical election year:
election year versus normal year market data line graph
Bank of America Merrill Lynch