Market Outlook · August 10, 2020

Shifting Gears: Historical Data on Presidential Elections & Markets

Brent Ciliano

CFA | SVP, Chief Investment Officer

1 Views on this market rally

Markets aren't the economy, and the economy isn't the market. While they're somewhat related, history has demonstrated that they aren't always in sync. Markets are a forward-looking, expectation-pricing mechanism. They bid themselves up or down in anticipation of what will come. The economy and most broad economic data tells us what has already occurred, not what is yet to come. Thus, it makes logical sense as to why they're so often dislocated.

2 What happens in markets leading up to and after presidential elections?

Historically, stocks have sold off ahead of the opposition party winning the presidential election, while it's been pretty much a straight shot up for markets when the incumbent wins. So what has historically happened to stocks after the dust settles? The first month after Election Day (i.e., much of November) tends to be bad regardless of which party wins. When the incumbent party loses, stocks have historically not only finished the year on a positive note, but the rally continued both 6 and 12 months post-election.

3 The S&P 500 could be a better indicator than the polls and pundits

If the S&P 500 is higher in the 3 months before the election (August 3rd through November 3rd), the incumbent has won. If stocks are lower in the 3-month period, the opposition has won.

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