Why Stocks Could Retreat After Trump Takes Office

The S&P 500 Index (SPX), Dow Jones Industrial Average (DJIA), and Nasdaq Composite (COMP) tend to dip the week after Inauguration Day

Jan 19, 2017 at 8:24 AM
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The S&P 500 Index (SPX) performance immediately after a presidential election has been a pretty good indicator for how stocks perform in the six months after Inauguration Day, as Schaeffer's Senior Quantitative Analyst Rocky White pointed out earlier this week. However, if history is any indicator, the SPX and its fellow major market indexes could be at risk of a short-term speed bump -- and the market's "fear gauge" could jump -- after Trump swears in on Friday, Jan. 20. Below, we'll outline some historical stats on how the SPX and its peers tend to perform leading up to and after Inauguration Day, and list more than 40 stocks to watch before the inauguration. (And while you're at it, check out these 3 exchange-traded funds that could move as the Trump winds blow.)

The table below lists all the SPX stocks that have been positive every single pre-inauguration week going back to 2000. Medical supplier Hologic, Inc. (NASDAQ:HOLX) has been the best performer, averaging a return of more than 10.5%. In the past week, so far, HOLX is down 1.82%, but remains within striking distance of its annual high of $41.01, tagged in mid-December. Meanwhile, many consumer staples stocks ("Food Bevgs Soaps") tend to outperform leading up to inauguration.

Best Pre Inaug Stocks

That said, there are 15 SPX stocks that have never ended pre-inauguration week in the black. Bank stock Capital One Financial Corp. (NYSE:COF) has suffered the most, averaging a one-week drop of 7.42%. In the past week, COF has dropped about 2.1%. A few other banks/finance stocks also made the list, including Bank of New York Mellon Corp (NYSE:BK), which reported earnings this morning. Also notable, big-cap stocks Boeing Co (NYSE:BA), AT&T Inc. (NYSE:T), and Verizon Communications Inc. (NYSE:VZ) tend to perform poorly leading up to Jan. 20.

Worst Pre Inaug Stocks

Going back to 1937 -- the first time Inauguration Day was on Jan. 20 -- the SPX has averaged a slimmer-than-usual return in the week before inauguration (which does not include the Inauguration Day return). The Dow Jones Industrial Average (DJIA), meanwhile, has averaged a loss of 0.18% in this week. Still, both indexes ended the week higher 65% of the time. 

The tech-rich Nasdaq Composite (COMP) tends to outperform leading up to Inauguration Day -- as it did yesterday -- averaging a gain of 1.18%, going back to 1972 (when we first have data), and positive 73% of the time. That's much bigger than the COMP's anytime one-week average return of 0.21%. The CBOE Volatility Index (VIX) tends to drop in the week leading up to inauguration, averaging a loss of 1.7% going back to 1993 (when we first have data), and positive only 33% of the time, indicating lower-than-usual volatility expectations. 

The week after a presidential inauguration (which does include Inauguration Day returns), however, all three major indexes tend to underperform, averaging a modest loss, compared to average anytime one-week gain. The Dow has been positive just 45% of the time during the week after a president takes office. The VIX, meanwhile, averages a slimmer-than-usual gain of 0.63%, but has ended the week higher two-thirds of the time -- much more than usual. So, if history repeats itself, stocks may be in for a pullback -- and volatility expectations could rise -- after President-elect Trump takes office on Friday.

Indexes Inaug Week

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