Interesting data on S&P500 returns during the last two months of a presidential election year.

We looked at the last fifteen presidential elections beginning with the 1952 election of President Eisenhower.   With the exception of the swan elections of 2008, which took place during the financial collapse, and the contested of election of 2000, stocks have behaved very well in the last two months of the year.

For example, the average return for S&P500 in the last two months for all fifteen election years, including 2008’s -6.76 percent and -7.63 percent in 2000, is 2.59 percent.  Excluding 2008 the S&P500 returned 3.25 percent and removing both swan years, 2008 and 2000, the S&P returned an impressive average return of 4.09 percent.

The table below also shows that six presidents won reelection and three lost.  During the years when an incumbent won reelection, the S&P500 returned on average 3.5 percent and 5.0 percent when the challenger won.

Only one in six elections did the incumbent party win the White House when an incumbent president was not in the race.  Nine Republicans and six Democrats have won presidential elections since 1952 with the S&P500 performing fairly similar for both parties.

Given how close this election appears to be there is tail risk of a contested election, which would collide with the fiscal cliff resulting in a disaster for U.S. stocks, in our opinion.  That risk remains until the uncertainty is removed when polls close on November 6th.

We maintain the view that stocks rip higher with a decisive Romney victory, especially given the conventional wisdom (Intrade) is that the President wins reelection.   Not a political statement and history, as reflected in the table below,  does confirm our view — 5 percent average return for the S&P500 when the challenger defeats an incumbent president.   Given no Black Swans, of course!

Stay tuned!

Category: Data Analysis, Politics, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

3 Responses to “What to Expect When You’re Electing”

  1. obenation says:

    This piece is pretty thoughtless. The sample size is way too small to support the conclusions. Especially as when Nixon, Clinton and Bush were RE-ELECTED the gains were >5%. This really doesn’t tell us anything at all.

  2. constantnormal says:

    One thing that might make this a “this time it’s different” election is the widespread influence and presence of the Tea Party, made more difficult to precisely discern due to the number of “faux Tea Party” candidates, from both major parties, who are trying their best to walk & talk & attack-dog campaign as if they were actual Tea Party candidates.

    If you thought we had Congressional gridlock before, ya ain’t seen nuttin’ yet. That will have a much more significant impact on things than which of our exceedingly poor choices for president ends up occupying the White House.

    I fully expect us to take the flying leap off the fiscal cliff early next year, and incur whatever disruptive mayhem that will inflict on our crippled economy.

    So whether we see a run-up or sell-off immediately after the election, there is a good chance that the fiscal cliff will set our course, maximizing uncertainty in the first half of 2013 … but this is naught but idle speculation, at this point it will be easier to wait and see than to try and make sense of this mess.

  3. JesseLivermore says:

    So, the market goes up, except for the times when it went down. Do this experiment: take 15 random 2-month periods in the stock market. Throw out the worst two. Is the average positive? OMG IT IS!!