The S&P 500 could end the year at 1400-1450, a growth of 15%, according to Legg Mason Capital Management (LMCM).
David Nelson, the manager of the LMCM American Leading Companies trust, a US mutual fund, says the historical record of market performance in the third year of a presidential cycle strongly suggests that 2011 could be a very good year for stocks.
Nelson’s view strongly echoes that of his counterpart Bill Miller, who in November predicted 15% growth for the S&P 500.
“One has to go all the way back to 1939 to find a pre-presidential election year in which the S&P 500 declined,” says Nelson. “The S&P 500 was dead flat in 1947 and all other pre-presidential election years have been up since 1939, averaging a price-only gain of 17.3%, including 1947.” (article continues below)
Nelson says the reason why the market tends to be so strong in the third year of presidential election cycle is the subject of much debate.
“The best explanation we have seen is based on the politics of mid-term elections,” he says. “Whatever the reason, the historical pattern has been impressively consistent. A 17.3% gain in 2011 would put the S&P 500 at about 1475 by year end.”