What Happens to the Stock Market After U.S. Elections? A Historical Perspective
As the election approaches, we encourage everyone to exercise their right to vote, regardless of political affiliation. Engaging in the electoral process is crucial for shaping the future, and history shows that the stock market tends to rise after elections. Understanding how the market reacts in the post-election period can provide valuable insights for investors.
The stock market typically experiences fluctuations after a presidential election, with a tendency to rise over time, but investors should brace themselves for short-term volatility. Historical data indicates that, on average, the three major benchmarks see gains between Election Day and the end of the year, dating back to 1980, according to CNBC.
Stock Market Trends Post-Election
Average Stock Performance: The table below outlines the average performance of the S&P 500, Dow Jones, and Nasdaq Composite after U.S. elections, demonstrating a pattern of initial declines followed by eventual recovery and growth.
S&P 500 Performance
| Election Date | Day After | Week After | Month Later | Year End |
|---|---|---|---|---|
| 11/3/2020 | 2.20% | 5.23% | 8.83% | 11.48% |
| 11/8/2016 | 1.11% | 1.91% | 4.98% | 4.64% |
| 11/6/2012 | -2.37% | -3.77% | -1.01% | -0.15% |
| 11/4/2008 | -5.27% | -10.62% | -15.96% | -10.19% |
| 11/2/2004 | 1.12% | 2.97% | 5.29% | 7.20% |
| 11/7/2000 | -1.58% | -3.42% | -6.17% | -7.79% |
| 11/5/1996 | 1.46% | 2.16% | 4.23% | 3.72% |
| 11/3/1992 | -0.67% | -0.31% | 2.38% | 3.76% |
| 11/8/1988 | -0.66% | -2.48% | 0.52% | 0.93% |
| 11/6/1984 | -0.73% | -2.61% | -4.49% | -1.86% |
| 11/4/1980 | 2.12% | 1.72% | 5.77% | 5.21% |
Average Performance: -0.30% (Day After), -0.84% (Week After), 0.40% (Month Later), 1.54% (Year End)
Median Performance: -0.66% (Day After), -0.31% (Week After), 2.38% (Month Later), 3.72% (Year End)
Dow Jones Performance
| Election Date | Day After | Week After | Month Later | Year End |
|---|---|---|---|---|
| 11/3/2020 | 1.34% | 7.06% | 9.06% | 11.38% |
| 11/8/2016 | 1.40% | 3.22% | 6.99% | 7.80% |
| 11/6/2012 | -2.36% | -3.70% | -1.30% | -1.07% |
| 11/4/2008 | -5.05% | -9.68% | -12.98% | -8.82% |
| 11/2/2004 | 1.01% | 3.49% | 5.47% | 7.45% |
| 11/7/2000 | -0.41% | -2.48% | -3.06% | -1.51% |
| 11/5/1996 | 1.59% | 3.04% | 5.85% | 6.04% |
| 11/3/1992 | -0.91% | -0.83% | 0.74% | 1.50% |
| 11/8/1988 | -0.43% | -2.37% | 0.67% | 1.93% |
| 11/6/1984 | -0.88% | -3.02% | -5.92% | -2.62% |
| 11/4/1980 | 1.70% | 0.73% | 3.55% | 2.86% |
Average Performance: -0.27% (Day After), -0.41% (Week After), 0.83% (Month Later), 2.27% (Year End)
Median Performance: -0.41% (Day After), -0.83% (Week After), 0.74% (Month Later), 1.93% (Year End)
Nasdaq Composite Performance
| Election Date | Day After | Week After | Month Later | Year End |
|---|---|---|---|---|
| 11/3/2020 | 3.85% | 3.52% | 10.90% | 15.48% |
| 11/8/2016 | 1.11% | 1.58% | 4.31% | 3.65% |
| 11/6/2012 | -2.48% | -4.25% | -0.75% | 0.25% |
| 11/4/2008 | -5.53% | -11.19% | -18.79% | -11.41% |
| 11/2/2004 | 0.98% | 2.95% | 8.00% | 9.61% |
| 11/7/2000 | -5.39% | -8.12% | -19.41% | -27.67% |
| 11/5/1996 | 1.34% | 2.23% | 5.78% | 5.04% |
| 11/3/1992 | 0.16% | 3.83% | 8.56% | 11.97% |
| 11/8/1988 | -0.29% | -1.77% | -0.96% | 0.67% |
| 11/6/1984 | -0.32% | -1.08% | -4.58% | -1.27% |
| 11/4/1980 | 1.49% | 0.97% | 6.75% | 4.76% |
Average Performance: -0.46% (Day After), -1.03% (Week After), -0.02% (Month Later), 1.01% (Year End)
Median Performance: 0.16% (Day After), 0.97% (Week After), 4.31% (Month Later), 3.65% (Year End)
Historical Context and Investor Sentiment
The historical trend shows that, despite initial declines on the day after the election and in the following week, stocks generally rebound, often regaining most of those losses within a month. This cyclical pattern is a testament to the resilience of the market and the ability of investors to adapt to political changes.
However, investors should temper their expectations. The immediate aftermath of an election may bring uncertainty, especially if the presidential race remains undecided for an extended period. Close congressional races can also impact market stability, as investors await clarity on party control and potential policy shifts.
Conclusion: What Lies Ahead for Investors?
As we approach the upcoming election, investors find themselves at a crucial juncture. This year, the political landscape is particularly charged, with pivotal issues such as economic recovery, inflation, and social policies at the forefront of public discourse. The outcome of this election could have far-reaching implications for financial markets, especially as voters grapple with the potential for policy shifts that could impact various sectors.
Historically, the stock market has demonstrated resilience following elections, often rebounding from initial post-election dips. However, this year may present unique challenges, especially if the election results are close and contested, leading to extended uncertainty. Investors should brace themselves for potential volatility as markets react to the immediate aftermath of the election and await clarity on control of Congress and the presidency.
The key takeaway for investors is to remain vigilant and adaptable. While historical trends suggest that the market often recovers from initial declines, it’s essential to stay informed about the evolving political and economic landscape. By doing so, investors can better navigate the uncertainties that accompany election seasons and position themselves to seize opportunities that arise as the market adjusts to the new political realities. As we enter this critical period, a well-informed and patient approach will be invaluable for those looking to thrive in the post-election market environment
Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.
