Who knew investing was so simple? The chief investment strategist for Standard & Poor’s, Sam Stovall, has figured out when you should be in the market and when you should be out. It all boils down to where we are in the four-year presidential cycle, as he explains in a recent report.

Here’s what you need to know: The second and third quarters of the second year of the administration are almost always pretty dreadful, while the following three quarters more than make up for losses sustained during that six-month period.

Think about it for a moment and it seems quite logical. During the first year, a president typically enjoys something of a honeymoon, but often moves toward enacting belt-tightening legislation that is adopted or begins to take effect in the second year. Often, an incoming president has to tidy things up from his profligate predecessor. In the third year, all presidents in their first term are looking toward re-election, and begin to agitate for economic stimulus measures that will cast them in a good light during their fourth year. Even in a second term, a president is usually trying to tee things up for his successor.

Mr. Stovall began researching this phenomenon after hearing technicians talk about a coming four-year low. These market watchers pointed to 2002, 1998, 1994, and other presidential second years as cyclical low points in market cycles. Mr. Stovall decided to test the legitimacy of this concept, and compiled data going back to just after World War II. Analyzing figures from 1945 onward, he was struck by the consistency of the pattern which emerged.

Indeed, Mr. Stovall discovered that market cycle lows have occurred about every four years from 1962 to 2002. Only in 1986 was the low delayed until 1987. Mr. Stovall notes that the pattern prior to 1962 is less consistent, possibly because of the impact of World War II and the Korean War. On average, the lows have come 206 weeks apart. Taking that typical performance, the low in this cycle should occur on September 23 of this year. The range, though, is pretty wide, from 155 weeks to 271 weeks. That suggests that this cycle’s low might have occurred as early as last September (which it obviously didn’t), or could come as late as the end of 2007.

Mr. Stovall is the first to remind us that past performance is no guarantee of future behavior. However, he is impressed by the data. His work shows that from 1945 to 2005, the S&P 500 typically dropped 2% in the second quarter of the second year, and 2.2% in the third quarter. Lest you approach the spring and summer months feeling too glum, his figures also show that on average those losses are more than made up for by a hefty gain in the fourth quarter of the second year. Indeed the ensuing three quarters have produced average increases of 7.6%, 7.5%, and 5.3%, and are the best-performing quarters of the entire four-year cycle.

What’s an investor to do? Mr. Stovall suggests a couple of approaches to avoid being victimized by this seemingly unavoidable trend. First, there are differences in how various sectors perform. Based on the experience from 1990 to 2005, the worst-performing groups in the (second year) third quarter are consumer discretionary (-14.8%), financials (-17.3%), and industrials (-13%). These declines compare to an overall third-quarter drop of 9.6% in the S &P 500 during the past 15 years. What fares best? The consumer staples area (-6.5%), energy (-5.5%), health care (-0.5%), and utilities (-6.2%) are relative safe havens. This is no surprise, since those groups are typically viewed as defensive investments.

Another possibility for the more aggressive investor is to get out of the market altogether. Mr. Stovall put together some figures which compare investment results from 1962 to 2005 for two approaches – being fully invested at all times, or getting out of the market in that unrewarding third quarter. The fully invested approach delivered returns of 6.7%, while the more agile approach yielded gains of 9.5%. In other words, the difference potentially between keeping an account and losing one.

What do money managers think of this study? Vincent Farrell Jr., principal of Scotsman Capital Management, says, “It wouldn’t surprise me.” However, he cautions that the minute a large number of investors focus on a trend, its predictive value disappears. On the other hand, Mr. Farrell agrees that the fiscal and monetary policies undertaken by the government are powerful, and would likely be guided by the election cycle.

Sorrell Mathes of the Mathes Company says that his firm’s approach is too heavily based on fundamentals to be steered by historical or technical trading patterns. That being said, he acknowledges that his view of the market is quite similar to that projected by Mr. Stovall. His accounts are currently holding cash positions of 25%, compared to having been fully invested this time last year, and holding 15% in cash in the first quarter.

Though the market is up near new highs, Mr. Mathes points out that the gains are selective, with the Dow Jones Industrials outperforming the S&P 500. This indicates a preference for large cap stocks, which could be interpreted as defensive. This is also a reason that Mathes & Company is enjoying a 6% year-to-date gain in their accounts, since they have been focusing on larger names. Mr. Mathes expects the market to drift lower over the next three to five months, but to end the year with a significant rally. Why? The coming weakness will stem from concerns about further interest rate hikes and slowing growth. However,in Mr. Mathes’s view, “the economy is too strong for the politicians. The combination of significant worldwide liquidity, demand growth in developing countries like China, and slower but real growth in Europe means good fundamentals going forward.”

Two different approaches, but a similar forecast. Coincidence?