As the presidential election approaches, investors are bracing themselves for potential market volatility in the short term. While history shows that stocks typically rise after a presidential election, it’s important to be prepared for some choppy waters first.
According to CNBC data dating back to 1980, the S&P 500, Dow, and Nasdaq Composite have all seen gains between Election Day and year-end in the presidential election year. However, the immediate aftermath of the election may not see a straight shot up in the market. In fact, the indexes have historically averaged declines in the session and week following the election, only to recover within a month.
This year’s election is particularly uncertain, with a close race that may not be called by Wednesday morning. Additionally, final counts for Congressional races could also impact market sentiment as investors await clarity on which party will have control of either house.
Amy Ho, executive director of strategic research at JPMorgan, emphasized that the election is now center stage as the next catalyst for financial markets. She cautioned that uncertainty could linger on the outcome, especially as the timeline for certifying election results could take days for the presidential race and weeks for House races.
Despite the potential for short-term turbulence, 2020 has been a strong year for stocks, with the broader market reaching all-time highs. Bespoke Investment Group noted that the first 10 months of 2020 have seen the best performance for a presidential election year since 1936, with a gain of about 20%.
As investors navigate the post-election landscape, it’s essential to stay informed, remain patient, and be prepared for market fluctuations. By understanding historical trends and staying focused on long-term goals, investors can weather the storm and potentially benefit from post-election market movements.
