How Stocks Fare During Election Years

The outlook leans toward bullish when an incumbent is in the race

Senior Quantitative Analyst
Apr 29, 2020 at 7:15 AM
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In just about six months, the Presidential election will take place. As you've probably already heard, Donald Trump and Joe Biden are the presumptive nominees for the Republicans, and Democrats, respectively. Meanwhile, we are on the cusp of a historically bearish time for stocks (sell in May). I was curious if anything is different in election years compared to other years. You might expect more volatility as polls and expected future policies go back and forth between the candidates. Below, we’ll take a look at the actual numbers.

Presidential Election Years vs. Other Years

Election Day is the first Tuesday of November. Going back to 1948, I looked at how the S&P 500 Index (SPX) did in the six months leading up to Election Day. I split up the years depending on whether it was a Presidential election, just mid-term elections, or no election at all. The table below summarizes the six-month returns leading up to Election Day.

For all years since 1948, the SPX averages a gain of 2%, with 67% of the returns being positive. That is not impressive, but we knew that because of the popular “sell in May” axiom. It’s encouraging that Presidential election years are more bullish than that, with an average gain of 3.36% and over 80% of the returns positive. Interestingly enough, Presidential election years are not significantly more volatile than other years. Looking at the standard deviation of returns, the mid-term years are more volatile than Presidential election years. Non-election years have only a slightly lower standard deviation of returns.

S&P 500 6-Month Returns (to 2nd Tues in Nov)

More encouraging, Donald Trump is running for re-election and the six months leading up to an election have been especially bullish when there is an incumbent in the race. In the ten Presidential election years since 1948, in which there was an incumbent candidate, the SPX has averaged a 6.75% return with an impressive 90% of the returns positive. When there was no incumbent, the index averaged a slight loss. The average is a loss despite the fact 75% of the returns were positive. That average is heavily skewed by the 2008 election in which the SPX fell 28% in the six months before that election at the onslaught of the 2008 financial crisis. Hopefully, this incumbent election trend continues.

S&P 500 6-Month Returns (To 2nd Tues in Nov) 2


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