It's President Trump's Second Year. Here's What That Could Mean for Stocks in 2026.

• Bank of America set a 2026 year-end target of 7,100 for the S&P 500, implying roughly 4% returns and potential underperformance compared to historical averages
• The theory attributes second-year weakness to reactions to new policies and midterm election uncertainty, with strength typically returning in the second half of presidential terms
• Trump's first year in his second term bucked historical trends with 16% S&P 500 gains in 2025, reinforcing that past performance doesn't guarantee future results

Market Summary: Presidential Cycle Theory Points to Weaker 2026 Stock Performance

Key Findings

Historical data suggests President Trump's second year in office could present headwinds for equity markets, according to the Presidential Election Cycle Theory developed by Yale Hirsch, founder of *Stock Trader's Almanac*. The theory indicates the second year of a presidential term typically underperforms, with markets strengthening in years three and four.

Critical Data Points

• Historical Performance: Since 1940, the S&P 500 has averaged 4.2% gains during second-year terms, compared to approximately 9% annual average returns across all years
• Bank of America Target: Analysts set a year-end 2026 S&P 500 target of 7,100, implying roughly 4% returns for the year
• 2025 Performance: The S&P 500 gained 16% in Trump's first year (2025), defying typical first-year weakness

Market Implications

Bank of America warned clients to expect market underperformance in 2026, with particular pressure anticipated ahead of midterm elections. However, analysts suggest Q4 2026 could see improvement, potentially lifting markets to close out the year.

The theory attributes weaker first-half performance to early policy reactions and midterm election uncertainty, while second-half strength typically stems from efforts to stimulate the economy ahead of the next presidential election.

Important Caveat

Analysts emphasize that recent market behavior has defied historical patterns—2025's strong performance contradicts typical first-year weakness. This reinforces that past performance doesn't guarantee future results, and 2026 could potentially buck the presidential cycle trend despite historical precedent suggesting caution.