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Despite the talk about the risks surrounding America’s trip to the polls on Tuesday, election days historically aren’t that bad for the stock market.
The S&P 500 (^GSPC) rose on 8 of the 10 election days the stock market has been open since 1980. If we add together both the day of and the day after the election, the index has been a little more finicky and has fallen by half. of time.
A similar story played out this month. The S&P 500 has fallen in five of the past 10 November elections.
But zoom out and the story improves.
The S&P 500 rose an average of 10.68% in the year after the 1960 election. That exactly matches the standard average return for the S&P 500 over time. It’s one of many signs that while the election could very well cause some turbulence in the markets in the coming days, especially if there is no clear winner, the long-term trend is rarely stopped.
“We remain aware that while elections typically trigger near-term repricing, the S&P 500 tends to post gains in all balance-of-power scenarios,” Lori Calvasina of RBC Capital Markets wrote in a note to clients on Sunday.
In essence, elections are no different from other risks to the market, such as tensions in the Middle East, natural disasters or worker strikes. The key question remains what each risk could mean for future corporate profits.
And for elections, that means potential policies that could change the business environment. Typically, this means that a divided government with less drastic changes is the ideal backdrop for equities.
“Checks and balances resulting from disagreements at the congressional level (sometimes dramatically called ‘gridlock’) have often served in the past… to protect what investors care about most: a healthy economy for consumers and for revenues and profits. growth for business,” John Stoltzfus, Oppenheimer’s chief investment strategist, wrote in a note to clients Monday morning.
An analysis of the past few presidential cycles furthers this point. Research from Truist co-chief investment officer Keith Lerner shows that the S&P 500 grew 13% annually from the day President Barack Obama was elected to the night Donald Trump was elected.
From the day of Trump’s victory to Joe Biden’s 2020 victory, the index grew 14% year over year.
