It is not clear whether the elections actually affect the stock market. While investors want to see past events to make more informed decisions. The only common denominator they find is that there is no certainty about it.
If we take statistics from the year 1900 – which would no longer intervene much in the current context – we can see that the S&P 500 increases by an average of 9.5% in an election year. And if we start in 1928, we see that it has only been negative four times in election years. Since ’28 the Republicans have won 11 elections, in those years the S&P 500 rose on average to 15.3%. While since then the Democrats have won 12 elections and the S&P 500 average went up 7.6% in an election year. Which doesn’t mean much since in all cases the average the year after the election is 3.4% again.
Study of the market
When investing, Pepperdine Professor Marshall Nickles advises to invest on October 1 of the first year, and sell on December 31 of the fourth year of the presidency. But there are so many variables that you can’t be sure that these patterns will be repeated in every election. Yale Hirsch, creator of Stock Trader’s Almanac, published “Presidential Election Cycle Theory” where he states that the most prolific year during the presidency is the third, followed by the fourth, second and finally the first.
Knowing all this is a good start, but the patterns were not repeated in both the Obama and Trump presidencies. Obama’s first two years were the most prolific, while with Trump it was his second. For investors trying to get a handle on past data, it didn’t work out this time.
In conclusion, there is no way of knowing how the elections and whoever wins will affect the market. For investors, it would be a better way to invest in a more secure way, even if it presents less profit.
Dana Anspach (2019, November). Stock Market Performance in Presidential Election Years. Retrieved February 2020, from https://www.thebalance.com/presidential-elections-and-stock-market-returns-2388526