In his InvesTech Market Analyst the advisor reviews the basics of this cycle, its historical reasoning, and what the could portend for the market's action between now and Election Day.

"Since we are in the midst of an election year, this cycle warrants review. During the 4-year Presidential Election cycle there is a characteristic variation in annual stock market returns that is evident in historical data and actually makes sense when one thinks about it.

"Basically, it boils down to just 'good politics.' Politicians worth their salt understand the goal: get any
bad economic news over early during your term and have the economy back on track and humming along by Election Day.

"Consequently, the worst stock market performance typically occurs in the first two years after a Presidential Election. The third year, as politicians begin gearing up for re-election, is usually the
best year on Wall Street by a wide margin, and the only year where the average gain in the S&P 500 tops 10%.

"While election year returns generally moderate after that stellar performance, for investors this is still typically the second most profitable year in the election cycle. Below is a list of all election years since 1928 and the gain or loss of the S&P 500 during that year.

• 1928 + 12.6%
• 1932 + 24.2
• 1936 + 24.7
• 1940 - 8.4
• 1944 + 9.2
• 1948 + 7.9
• 1952 + 5.5
• 1956 - 1.6
• 1960 + 1.4
• 1964 + 7.2
• 1968 + 5.6
• 1972 + 5.9
• 1976 + 1.4
• 1980 + 21.4
• 1984 + 6.5
• 1988 + 5.3
• 1992 + 1.2
• 1996 + 9.2
• 2000 - 1.4
• 2004 + 2.1

"The average for all election years since 1928 is a gain of 7.0%. The average for election years since 1941 is a gain of 5.4%. This election year, with the Dow down year-to-date, is diverging from the norm.

"The question now is… Will this election year revert to a more 'normal' course between now and Election Day, or will the housing debacle and financial crisis prove too much for the politicians, the Fed and the stock market to overcome?

"The year definitely started off on the wrong foot. The economy is definitely slowing and financial markets remain tenuous. To top it off, this is one of the most contentious Presidential Elections in recent years, and markets hate uncertainty.

"Still, this market so far this year would likely look far worse if politicians and central bankers were not pulling out all stops to avoid a full blown recession. The Fed has cut key interest rates repeatedly since last September, dropping the Fed Funds target rate to just 2% at the last meeting.

"Clearly, the Fed and our elected officials are prepared to do 'whatever it takes' to soothe the markets. Without this intervention, the first four months of 2008 could have been much worse.

"Looking ahead, what can history tell us about the months between now and November’s political showdown? In spite of the ongoing pressures in this market, there’s reason to be optimistic over the near-term.

"It is very rare for the S&P 500 to lose ground from May 1 to Election Day. The average gain for this period, as shown in the following table, is 7%. Excluding the extreme fluctuations during the Depression Era, the average gain is still 5.4% over this time frame.

"In fact, the market declined from May 1 - Election Day only three times in the past 80 years. And only one of these instances saw a loss of more than 2% – that was in 1940 during WWII, when Germany invaded France.

"Even in 1932 and 1960, when the first four months of the year saw declines greater than we’ve experienced in 2008, the S&P 500 still managed to stabilize or even rally sharply from May 1 to Election Day, though it wasn’t enough to end these years with a gain.

"While 2008 doesn’t appear to be a 'typical' fourth year in the election cycle, historical precedent and a pro-active political environment favor market stability from now through November 4.

"Of course, history in no way trumps the negative forces in today’s market environment. It does, however, suggest that stocks could see less volatility, and even some gains, from now through Election Day.

"With that said, the risks in this market make following our safety-first strategy more important than ever. For now, we remain patient and cautious and will only consider adding companies that are selling at attractive valuations, have sound balance sheets and show solid growth.

"Also, we advise resisting the temptation to bottom-fish in financials and homebuilders, where negative surprises may continue to surface for some time to come."