History suggests investors should bet on an election-year rally. World events might suggest otherwise, strategists say.

Since 1926, the Standard & Poor's 500-stock index has returned 11% during an election year, the second-best year of the four-year election cycle, according to Credit Suisse (CS) research.

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Even better: Out of 21 election years since 1926, investors have lost money in only four.

But some strategists are urging caution in 2012. They say the current presidential cycle already is behaving far differently from a typical one. And with so much uncertainty outside U.S. borders, the election might not have the same effect it has had in past years.

"You can't compare this election to any during the last 30 years," says Rebecca Patterson, chief market strategist at JPMorgan Asset Management.

Historically, the market has performed best during year three of the election cycle, when the S&P 500 has averaged returns of 17.5%. That's followed by the election year's 11% gain, which trumps years one and two by 2.4 percentage points and 1.4 point, respectively.

The two possible results this time -- a Democrat stays in office or a Democrat hands off to a Republican -- have produced mid-double-digit returns during past election years, according to Credit Suisse.

 What to Expect from Stocks During an Election Year4:00

Historically, the third year of an election year often shows market rises in seven of the twelve months, S&P Capital IQ's Sam Stovall reports on the News Hub. Photo: Reuters.

This cycle, however, hasn't followed the historical pattern. The first and second years of President Obama's presidency stand a good chance of being the best, not the worst: The S&P 500 gained 26.5% in 2009 and 15.1% in 2010, well above the average first- and second-year returns of 8.6% and 9.6%. Meanwhile, 2011, the third year of President Obama's term, should have been the best of the cycle -- yet the S&P 500 gained just 2.1% counting dividends, and was essentially unchanged without dividends.

One reason the cycle is playing out differently is the lingering effects of the financial crisis. Typically, both major political parties look to stimulate the economy during the third and fourth years of the election cycle, in order to win votes.

But judging from the recent wrangling over extending the payroll tax cut, federal unemployment benefits and Medicare rates for 2012, investors shouldn't expect much stimulus anytime soon, strategists say. A failure to extend those benefits could knock 0.8 percentage point off of gross domestic product in 2012, according to research from investment bank Nomura.

That doesn't mean the market can't rally. The S&P 500 gained more than 20% in 1976, the year Jimmy Carter unseated Gerald Ford, and in 1980, the year Ronald Reagan defeated President Carter. In 1992, when Bill Clinton defeated George H.W. Bush, the market rose 7.6%. In 1948, when Democrat Harry Truman upset heavily favored Thomas Dewey, large-cap stocks returned 5.5%.

No matter who wins in 2012, investors should expect a volatile year in the markets, says Barry Knapp, head of U.S. equity strategy at Barclays. He looked at past elections that occurred soon after recessions or periods of economic turbulence. His finding: Market volatility rises during the primary season, falls and then nearly doubles during the 12 weeks leading up to the election, as the outcome becomes its central preoccupation.

"There will be lots of ebbs and flows," says Mr. Knapp. "But by the conventions, the election will be the central focus."

The U.S. election won't be the only source of political uncertainty this year. Seven G-20 nations will be holding elections of their own in 2012, including France, Italy and Mexico. Just two did in 2008, according to Strategas Research Partners.

And with Europe still wrestling with its debt crisis and the jury out on whether emerging markets will avoid recession, the results will also have an impact on markets, strategists say.

"The U.S. still matters, but that's a huge list of elections," says JPMorgan's Ms. Patterson. "There's a lot of uncertainty that will reverberate globally."

She recommends emerging-market stocks because, unlike Washington, emerging-market governments have cash to stimulate their domestic growth, and their central banks have room to reduce interest rates.

David Rosenberg, chief economist and strategist at investment firm Gluskin Sheff & Associates in Toronto, recommends investments that typically do well in periods of volatility, including "hybrid funds" that blend corporate bonds and dividend-paying stocks, and top-rated "junk" bonds -- which are already priced for a recession, he says.

"This is the most important election since 1980," Mr. Rosenberg says. "It will be a rollercoaster ride."