Election Week Impact on the S&P 500: A Historical Analysis

Korey Knepper |

As the title suggests, I examined the opening and closing prices of the S&P 500 Index during the week of U.S. presidential elections, dating back to JFK's victory in 1960. During this time, we’ve seen sixteen presidential elections take place. Since then, we have landed on the moon, beat the USSR in Hockey, ended the Cold War, invented the personal computer, we have seen access to knowledge sore with the internet, and most recently, we have seen implementations of Artificial Intelligence. How will the 2024 election between Harris and Trump affect the market? I have no idea, but we can see what it has done historically, and look for trends for this coming November.

  1. Increased Volatility in Recent Elections: Elections do create volatility, but this has increased more recently with the rise of technology and retail trading. The standard deviation in this study was 3.31%. However, if we measure from 1996, the start of the dot-com boom, the standard deviation increases by 1.52%. Increased knowledge and awareness from cable TV news, finance channels, and social media platforms have heightened awareness of the political impact on the market. They have also contributed to today's massive political polarization. From 1968 to 1992, the market volatility standard deviation was 1.55%. From 1996 to 2020, it jumps to 4.82%, a 311% increase. This makes sense when you look at the process for making trades today vs. the pre home computer days. Now you can log into an app on your phone and make the trade, as opposed to calling a broker and requesting the trade that way.
  2. It's Going to Be Okay: Despite being a polarizing topic, elections don't necessarily spell doom or boom for the market. Only three times in the sixteen-election sample did the S&P 500 drop compared to the previous election. After President Ford lost to President Carter, shortly after the 1970s recession, and twice under President George W. Bush during the dot-com bubble burst and the 2008 recession. Thirteen of the last sixteen elections saw the S&P 500 Index increase, soon to be fourteen of the previous seventeen.
  3. Long-Term Investing Works: The data underscores the power of compound interest over six decades. When JFK was elected in 1960, the S&P 500 closed at $55.87. As of this analysis, the S&P 500 is around $5,550, an increase of over 9800%. A $10,000 investment in 1960 would be worth over $980,000 today. Compound interest is powerful; let it work for you. Also, S&P 500 model has worked very well. At the time of the 1960 election, the largest companies in the US were GM, Exxon Mobil, Ford, and General Electric. The current top seven holdings in the S&P 500 were all founded after 1960. The model does a great job of adjusting over time.
  4. Red and Blue Are Just Colors: Over the last sixteen elections, we've seen an equal split of eight Republicans and eight Democrats. When a Democrat is elected, the market sees an average rise of 0.67% during election week, while a Republican victory shows an average move of 0.08%. However, the 2000 election, which saw a -4.39% drop due to an undecided result, skews this data. Excluding 2000, the average increase for a Republican win is 0.72%, a negligible difference from a Democrat win. Ultimately, party affiliation has a smaller impact on the market than candidates and economic conditions.

Conclusion: As we approach the week of November 5th, we will likely see some market volatility regardless of the election outcome. I can’t predict who will win between Harris and Trump, but I can predict some volatility. In fact, we have already started to see some in the past couple of weeks. However, history shows that long-term investments and the broader economic environment play a more significant role in market performance than short-term election week fluctuations. Having a plan for either situation that doesn’t include over-reacting is key. If you would like assistance in that plan, set up a meeting with me using this link. Thanks for reading.