History Lesson: How Did US Stocks Perform After Elections

Historically, US stocks have tended to rise after presidential elections, but investors need to brace for some short-term volatility, according to data showing that the three major US stock indexes have averaged gains from election day to the end of the year since 1980. However, history suggests investors should not expect a straight line upwards after the polls close.

Looking further out, presidential election years have generally been good for US stocks. Since 1960, the S&P 500 has risen in nearly every election year, except 2000 and 2008, which were hit by the bursting of the internet bubble and the financial crisis respectively. The record looks even better in the most recent cycle. The benchmark index rose by at least 10 per cent in each of the three election years since 2008 — 2012, 2016 and 2020.

Even narrowing the focus to just the last seven months of election years produces similar results. According to Stock Trader’s Almanac data and analysis, the S&P 500 has risen in 16 of the 18 presidential election years since 1950. The exceptions were 2000 and 2008.

Indeed, the three major indexes have averaged a drop on the day after the election and in the week that follows. Data shows the market often recovers most or all of its losses within a month. That means investors should not expect a quick rise on Wednesday or in the days that follow.

With the two candidates in a tight race, the result may not be known before Wednesday morning. So the market may have to wait for the tight congressional election to determine which party controls the final vote count in the House and Senate.

Amy Ho, executive director of JPMorgan’s strategic research, said: “The election is now the central factor in the next catalyst for financial markets. We warn that the uncertainty around the election result may persist, as it may take days to confirm the presidential election and weeks to confirm the House election.”

The election comes at a time when US stocks have been strong, pushing the market to record highs. The first 10 months of 2024 are the best for presidential election years since 1936, with a rise of about 20 per cent, according to Bespoke Investment Group.