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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.
Since Biden’s election, the index has averaged an annual return of 16%. All three returns are well within the normal range.
Information technology (XLK) was the best-performing sector or the second-best performing sector in the S&P 500 in all three regimes. Lerner reasoned that this was “probably because that’s where the earnings growth was happening.”
Simply put, whoever has been in the White House has done little to influence the tech bull market of the past fifteen years. And whatever happens Tuesday night, it’s not clear the long-term trend will end anytime soon.
As Baird market strategist Michael Antonelli told Yahoo Finance, the real driver of the stock market won’t change no matter what happens on Tuesday.
“The reason the stock market rises over time [is] that the people who work at the companies go to work, create products and services, and the shareholders benefit,” Antonelli said. “No matter what happens, no matter who wins, your neighbors go to work and they go to work.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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