Breaking Down Historic Market Performance Around Election Day

Plus, which candidate should have investors excited

Senior Quantitative Analyst
Oct 28, 2020 at 8:00 AM
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There are just six days until Election Day, and that is all that is on everyone’s mind. So, this week, I’ll take an in-depth look on how the market has performed heading into the election, as well as how it has performed after. Hopefully, we will gain some insight into what to expect for the rest of the year given some Election Day scenarios.

Week Before the Election

Based on this first table, now would be a good time to buy stocks. I went back to 1948 and looked at how the S&P 500 Index (SPX) performed in the week leading up to the election. The index was positive before 16 of the 18 presidential elections averaging a gain of 1.43%. For comparison, a typical one-week return is an average gain of 0.17%, with 57% of the returns positive (last column in the table). The table also shows that stocks have tended to do very well in the week leading up to midterm elections. Interestingly, the week leading into elections, whether presidential or midterms, has been less volatile than non-election weeks.

1 week retruns

The next table shows the actual Election Day, as well as surrounding days, while the lower table shows typical returns for the corresponding days for comparison. The Friday before Election Day has been slightly bullish when looking at its average return, even though it has been positive at a slightly lower rate than usual. Mondays have typically been bearish since 1948, averaging a slight loss and not even half of the returns positive. The Monday before a presidential election, however, has been bullish. Lastly, the Monday before Election Day has been positive 83% of the time, averaging a return of 0.46%.

There have only been nine Election Days in the data because the stock market was closed on Election Days for the 1980 election and before. Election day, however, has been bullish when markets have been open. For some reason, the day after the election has tended to be bearish. Only 39% of the returns have been positive averaging a loss of 0.66%. Perhaps investors tend to be hopeful that their preferred candidate will win heading into the election. This makes them bullish, so they buy stocks. When some investors are disappointed after Election Day, they abruptly sell the stocks they had just purchased. 

Around election days

Rest of Year Returns

Here’s a look at how the S&P 500 has performed for the rest of the year. Stocks tend to struggle after elections for the rest of the year. The index has been positive 61% of the time, but can also lag other years. The S&P 500 has been positive 67% of the time for the rest of the year after midterm elections, and 75% of the time during off-years. Also, after presidential elections, the SPX has averaged a gain of less than 1%. Other years, the index averages a gain of over 2.6%.

Rest of year

Finally, I looked specifically at years where there was an incumbent running for reelection. There aren’t enough data points to come to any real conclusions but based on the numbers, investors could be rooting for Joe Biden next week. In the 10 elections since 1948 when an incumbent was running, the S&P gained an average of just 0.18% and was positive 38% of the time, when the incumbent candidate won. The two times the incumbent lost, the index was positive both times averaging a gain of 4.48% for the rest of the year.

Rest of year 2

For those curious, the table below shows the individual years in which an incumbent was running for reelection. It shows the outcome and the return of the S&P 500 index for the rest of the year.



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