Predicting Presidential Election Results

It doesn’t matter which side of the aisle you sit on. Investors tend to become nervous during election years. Throw in a pandemic, a bear market and subsequent huge rally, and this year is no exception. We have a divided nation, extreme left and right views, and protests around the world. Depending on the news source viewers follow, the world is either falling apart or looking optimistic. Fortunately, the stock market has been a remarkable predictor of presidential election results. 

CFRA Research compiled historical data of the past 19 presidential elections, which produced interesting results. Since 1944, the sitting president was defeated 88% of the time when the S&P 500 declined in the months of August through October. Many of the current polls indicate a Democratic sweep. CFRA dug a little deeper and searched for election years when Democrats won the Presidency, House and Senate. This happened in 5 of the previous 19 elections. On average, the S&P 500 dropped 2.4% during the month of November, but went up 3.1% in December. Over the next year, the market returned an average of 10.4%. The most recent Democratic sweep was in 2008 when President Obama won. The market dropped 7.5% in November, was up .8% in December, and returned 23.5% over the course of 2009.