With the Democratic and Republican political conventions, the election season is in full swing. This month turns out to be a smart time to review the old trends of the past presidential election and how investors can use this wisdom to advise them throughout the current season.
The U.S. stock market hates uncertainty. That is why, as can be seen in the chart below, the market spot tended to be sold in September and October before the presidential election. Once the result of the election is known, regardless of the match he wins, the market place ends the year on a positive note, recovering in November and December.
Regardless of the existing polls, I hope they’re the contested elections in November. And given the probably higher number of ballots by mail, it is very conceivable that we still do not know the winner of the presidency the day after Election Day. This uncertainty poses a threat to the stock market, and I think there is a high probability that this year will remain in a precedent with new months of September and October minimum.
Market functionality on election season
Only two sectors recorded positive returns on average in October of an election year: retail and generation. Given the excessive execution of any of the sectors this year, it will be attractive to see if this trend continues. After the election, fitness care tends to work well. In November and December, the cyclical and commodity sectors recover optimistically for the new year, while the retail industry and generation are left behind.
When an incumbent wins a second term, regardless of party, the market usually performs better in the first year of the second term than it does in the first year of a new president, as the chart below shows. This may be because, when the incumbent wins, it’s often because the U.S. economy is strong. Given the current economic weakness in the wake of the COVID-19 pandemic, I’m not sure if we can expect this to hold true if President Trump is re-elected.
The market also prefers a formula of brakes and counterweights, in which one party has executive power and the other at least one chamber of Congress. When the U.S. government It’s governed by a party, one-month, three-month performances have sometimes been negative, whether Republicans or Democrats are in charge. For six months, market functionality is stagnant under Democrats and strongly negative under Republican. However, a year after the election of the ruling party, the effects are positive on both parties.
The soft one at the end of the tunnel
History tells us that investors want to be cautious in the last days of summer and until September and October. After the election, the U.S. market performed well on average, regardless of the party it wins, the incumbents perform better in its first year than the new presidents. But since markets have canceled any appearance of general seasonal trends this year due to common cases of the pandemic, 2021 would possibly surprise us. In any case, I encourage investors to fasten their seat belts and reduce some of their threat as we introduce what is likely to be a bumpy election season.
Report:
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I am chief investment officer at O’Neil Global Advisors (OGA), a subsidiary of O’Neil Capital Management, an investment that develops systematic inventory trading.
I am Chief Investment Officer at O’Neil Global Advisors (OGA), a subsidiary of O’Neil Capital Management, an investment advisor that develops systematic equitable trading methods that employ quantitative models and algorithms. Previously, I served as Chief Investment Strateeist at William O’Neil Co., an independent consulting firm that offers global buying and selling recommendations, independent studies, and personalized recommendations to many of the world’s leading institutional investment managers. I have controlled a lot of long and short coverage budgets, mutual budgets and institutional accounts and have overseen investment groups at Folger Hill Asset Management, Freedom Capital Management, Westfield Capital Management and The Boston Company. I am a qualified money analyst and appear on Reuters TV, Bloomberg Radio, CNBC and Fox Business.