Historical performance of the S&P 500 index (SPX) after Inauguration Day
This past Monday, while markets were closed for Martin Luther King Jr. Day, Donald Trump took the oath of office and officially assumed the presidency. This got me wondering how stocks tend to perform once a new presidential term begins. This week, I’m diving into the historical performance of the S&P 500 index (SPX) after Inauguration Day to see how markets respond as the policies and focus of incoming administrations start to unfold.
Markets Following Inauguration Days
Inauguration Day takes place every four years on Jan. 20. This past Monday was the 20th Inauguration Day since World War II. The first table below compares how the SPX performed in the first month after Inauguration Day versus after Jan. 20 in non-inauguration years. Stocks performed a lot worse after an inauguration. I guess that’s how long it takes for investors to realize all those great promises made during the campaign aren’t going to be kept (zing!).
In the month after an inauguration, the SPX tends to lose 0.07% with less than half of the returns positive. In non-inauguration years, after Jan. 20, the index gains 0.90% on average with almost 60% of the returns positive. Interestingly, stocks have been less volatile after a new president assumes office compared to other years. The second table below shows the returns in the next three months. Again, the SPX tended to underperform after an inauguration takes place.
The party of the president is changed from Democrat to Republican. I wondered how stocks tended to react to a change in parties versus years when the incumbent party remained in office. The first table shows the SPX has underperformed in these situations over the first month of the new administration. The index averages a loss of 0.77% after a new party assumes power with 40% of the returns positive. When the incumbent party remains in power it averages a positive return of 0.71%. Looking at three months after inauguration, however, stocks have been slightly better after a new party assumes power.
Now, let’s look at the inauguration of Republican presidents versus Democrat presidents. Stocks have done better after the inauguration of a Democrat compared to a Republican, like Trump. Focusing on the returns in the three months after inauguration (second table below), the SPX averaged a slight loss with half of the returns positive after a Republican took office. That’s significantly worse than after a Democrat has taken the oath of office, in which the index averaged a return of 2.54% with 67% of returns positive.
Naturally, this made me to wonder what about when a non-incumbent Republican gets inaugurated. The tables below show this has been the worst possible scenario. This scenario has happened five times. The SPX averaged a loss of 1.5% over the next month with just one of the five returns positive. Over the next three months, the index loses 1.87% on average with two of five returns positive. On the bright side, it’s the same scenario we were in on January 20, 2017, when Trump was a non-incumbent Republican. The SPX was up 4.1% over the first month and then pulled back a bit but was still up 3.4% over the first three months.
