The Obama administration has taken over, and is now dealing with the economic turmoil - are there any indicators that may give a hint on when we may emerge from the current crisis? Historically, there is a phenomenon known as the Four-Year Presidential Cycle that could shed some light on the current situation.

Simply put, the Four-Year Presidential Cycle states that the first two years of a new presidential term (does not apply to second terms of Incumbent Presidents) are in general underperforming, while the final two years demonstrate financial strength. Before analyzing how this cycle may work its way out for the new administration, let's take a look at why this cycle is so consistent.

The first year of a new presidential term is often turbulent/transitional (even on its own, without such external forces as we see currently) and features the poorest historical performance, but the second year is when most administrations take steps toward bolstering the economy. Nevertheless, the second year is known for below-average performance. In fact, bear-market bottoms take place in the second year more than any other year. Does this mean the ultimate bottom will happen in 2010? No, but data sure suggests that it could.

The steps taken in the second year are then enforced and augmented in the third year, which is historically the strongest of the four years. Finally, the fourth year that sets the foundation for the incoming administration - and the stock market's performance skews better-than average. (NOTE: this cycle is often absent in the second term for a president thanks to circumstances carrying over from the first four years - see the second Reagan, Clinton, and Bush administrations)

By the time the fourth year is winding down, and elections approach the fear machine has started to work Economic concerns often create what some call economic "excesses," which could include over-priced stocks. The cycle then allows these stocks to come back to reality in the first two years of a new administration.

This cycle is consistent, how consistent? The pattern shows that each new president has seen relative market lows in the second year (since 1918), which would be 2010 in the current situation. This low was then turned around strongly by the third year's high, judged by gains in the Dow.

In recent history, former President Bush's first term began in 2001. 2001 & 2002 were both down years for the markets, while 2003 & 2004 were strong up years. The cycle certainly held true in the most recent 1st Presidency term.

The table below features data from the S&P Total Return Index and represents the S&P 500's return in each of the new administration's term year since 1947.



Remember, this is the average annual return since 1947, so it covers some very long bullish runs in the markets - hence the high average annual return. But you can glean from this that the 3rd year of a New Presidential Term outperforms the 1st year by almost 3x, for example. The data alone gives us reason to believe things will eventually get better, and that 2011 should be a strong year for the markets.

A firm believer in this cycle could confidently state that there will be a bottom in 2010 (which is the second year of the administration). Is this definitely the case? No, but this cycle is a historic indicator with a pretty good track record. Taking this data into account, the Four-Year Presidential Cycle could signal a light at the end of a long tunnel, let's just hope it isn't a train.

Price Headley is the founder and chief analyst of BigTrends.com.