Summarizing six-month returns leading into Election Day
Sell in May and go away is a well-known stock market adage. The table below explains where the saying came from, in which using S&P 500 Index (SPX) returns since 1948, we’re heading into the worst six-month stretch of the year.
From the end of April through October, the S&P 500 averaged a return of just 1.83%, with 66% of the returns positive. The other six months of the year averaged a gain of 6.85%, with 77% of the returns positive. With the upcoming U.S. Presidential Election in November, the analysis below examines how these trends change in election years.
Presidential Election Years vs. Other Years
The 1948 Presidential Election was the first one with an official federal election day (Tuesday after the first Monday in November). I looked at how the SPX performed in the six months leading up to Election Day since then. I split up the years depending on whether there was a Presidential election, mid-term election or an off year. The table below summarizes the six-month returns leading into Election Day.
As we saw above, the six months leading up to November have been unimpressive. The returns in the table above don’t correspond exactly with the returns below, but they are close. It’s encouraging that presidential election years are more bullish than other years, with an average gain of 4.67% and almost 90% of the returns positive. I was curious if stocks were more volatile heading into elections. 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.
The current president, Joe Biden, is not running for reelection, but it's worth pointing out that in the 11 Presidential election years since 1948 in which there was an incumbent candidate, the SPX averaged a 7.57% return with an impressive 91% of the returns positive.
The 2024 election will not feature an incumbent, with Vice President Kamala Harris, the Democratic nominee, facing off against the Republican nominee, former President Donald Trump. In years with no incumbent, the index averaged barely above breakeven. The average is minimal despite the fact that 88% of returns were positive. That average is heavily skewed by the 2008 election, in which the SPX fell 28% in the six months before voting day.
