So far in 2026, the S&P 500 is down less than 1% year-to-date after posting a solid 17.9% total return in 2025. It’s not terrible, but according to CFRA Research, this is the weakest first-year start for any new presidential term in the last two decades. If you invested through Donald Trump’s first term, this probably feels familiar: Year Two has a reputation for being the roughest stretch in the presidential cycle.
History doesn’t repeat exactly, but the pattern is hard to ignore. Let’s walk through why it happens, what it usually looks like, and two stocks that are showing everyday investors how to handle this kind of environment without losing sleep.
The Pattern That Emerges Every Second Year
Since 1940, the presidential election cycle has shown that Year Two is typically the weakest for stocks. The S&P 500 has averaged just 4.2% returns in those years — well below the long-term average of around 9%, according to Bank of America analysts. The first nine months are often flat or slightly negative, with most of the year’s gains coming late in the fourth quarter.
Trump’s first term followed the script perfectly: strong 21.8% gains in 2017, followed by a 4.4% drop in 2018 amid tariff noise and midterm jitters. The reasons are pretty straightforward — markets digest the post-election excitement, midterm elections create uncertainty, and policy implementation hits some bumps. Volatility tends to pick up while returns shrink.
We’re seeing some of that rhythm again now. Even with fresh tariff talk and global headlines, the modest 2025 gain and soft start to 2026 line up with classic second-year behavior. The good news? It doesn’t have to mean disaster for your portfolio. It just means it’s smart to focus on companies with strong pricing power, reliable cash flows, and businesses that can weather the noise.
Two Stocks Reflecting the Pattern in Real Time
Some sectors just keep delivering, no matter what the calendar says. Take defense contractors. Lockheed Martin (NYSE: LMT | LMT Price Prediction) is a great example. Its shares are up more than 26% year-to-date — handily beating the market’s near-flat performance — while paying a 2.2% dividend yield.
In its fourth quarter, the company reported $20.3 billion in revenue (up 9.1% from the year before) and earnings of $5.80 per share. Management is guiding for 5% sales growth and a healthy 25% increase in segment operating profit for 2026. With a forward P/E around 28.55 and expected earnings growth of 9.4%, Lockheed is giving investors both price appreciation and income while the broader market wobbles.
On the energy side, Exxon Mobil (NYSE: XOM) is telling a similar story. Shares are up nearly 27% so far this year and the stock yields 3.4%. For 2025, the company generated $28.8 billion in earnings, $52 billion in operating cash flow, and returned a massive $37.2 billion to shareholders through dividends and buybacks.
Compare that to peer Chevron (NYSE:CVX), which had $16.6 billion in free cash flow and a dividend coverage ratio of about 1.3x. Exxon covered its dividend more than 3x with operating cash flow. At a trailing P/E near 23, it offers a nice margin of safety when the market is going sideways.
Retail investors who held both stocks through this early softness have collected solid dividends and watched strong fundamentals hold up while the S&P 500 mostly treaded water.
Positioning for the Rest of 2026
Think of the second-year pattern as a helpful reminder rather than a scary prediction. This is a good time to trim stocks with sky-high valuations that are extra sensitive to trade headlines, and tilt toward companies with growing free cash flow, strong dividend coverage, and clear tailwinds in their sectors.
The encouraging part? In 14 of the last 18 second-year periods since 1950, the market delivered most of its gains in the fourth quarter. Patience plus quality stocks have usually been a winning combination.
Key Takeaway
Year Two of any presidential term — including this one — has historically brought lower returns and bigger swings than average. The long-term data since 1940, Trump’s own 2018 experience, and the S&P 500’s current soft start all tell the same story.
But Lockheed Martin and Exxon Mobil show that you don’t have to fight the cycle. You can own strong businesses in resilient sectors that keep generating cash and paying you to wait. Focus there, stay diversified, and let the late-year seasonality do some of the heavy lifting. Your portfolio doesn’t need to outsmart Washington — it just needs to own solid companies that keep compounding no matter who’s in the White House.
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