The Election and the Stock Market

Between the COVID-19 pandemic and what is turning out to be the most divisive Presidential election in U.S. history, we’ve received a lot of questions about what’s going to happen if one or the other candidate wins.

 

For starters, the stock market has accurately predicted the winner of the U.S. Presidential election 87% of the time.  To elaborate, whenever the S&P500 has been higher in the three months leading up to election day, the incumbent candidate won in 20-out-of-23 elections.  The three times that it didn’t work were in the years when both Nixon and Reagan won, and when Eisenhower won re-election.

 

11-November-Table The Election and the Stock Market

 

All that being said, we’re going thru a unique time in our country’s history, and I’d never recommend anyone invest their hard-earned retirement dollars based on one historical statistic, regardless of how accurate it’s been.  Truly, anything can happen this year, but at the same time, history has taught us to pay attention to these last three months prior to election day as a potential sign of things to come.

 

More importantly, what might happen after the election is over?

 

Fortunately, I have nothing but good news to share!  At least from a historical perspective, the average performance of the stock market has been higher in the weeks that follow the election, regardless of who wins.

 

As you can see in the chart below, the averages tend to de-couple in September when comparing the incumbent winner vs. the challenger getting the vote.  However, in the last week of October, both lines tend to trend northward.

 

11-November-Seasonality-Chart The Election and the Stock Market

 

While this might help ease some anxiety, everyone reading this article is probably thinking to themselves, “Yeah, but COVID,” and you’d be correct to include this very obvious problem into your thought process.

 

We don’t yet know how much the economic shut down has really hurt businesses and we still don’t understand the magnitude of unemployment in this country and how that will affect supply, demand, economic growth and consumption.

 

So while Jerome Powell and the Federal Reserve have no plans to increase interest rates for the next few years, we still have a big problem with the millions of people struggling to find work, paired with growing deficits and government debt equivalent to more than 130% of GDP (gross domestic product).

 

These are going to be things we’re going to have to keep our eyes on as potential headwinds in the months and years to come.

 

Till next time…

Adam

Categories: Adam Koos, CFP®, CMT®, Educational Articles

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