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The Market Aftermath of Presidential Elections

November 9, 2012

by Doug Short

In previous commentaries this week I've been reporting on the historical patterns of pre- and post-election market behavior. Here is another follow-up, posted before the market opens on the last day of the presidential election week.

Below are two tables, one for the S&P 500 and the other for the Dow, showing the index performance immediately prior to the election and for the Wednesday and Thursday after the election.

In both tables we see a striking historical tendency to buy the market prior to the vote count and sell the day after the votes are counted on Wednesday. Thursdays have been somewhat less pattern-prone over time. I'll make some specific observations, but first, here are the tables, starting with the last 16 election in the S&P index.

Since 1950 S&P index daily closes have been positive 52.83% of the time, negative 46.39% of the time and unchanged 0.78% of the time. The average daily gain over the past 62 years is 0.033%. But when we focus specifically on election week, as we can readily see in the table above, the market frequently gets into a tizzy of volatility. The last close before the presidential vote count has averaged 0.65% and been positive 13 out of 16 times. In contrast, the day after the vote count has been negative 10 of 16 times and has averaged -0.55%, which is well below the norm. On Thursday following the election (as in yesterday's close), the index has cut the previous day's loss by over half to -0.26%. There were some conspicuous outliers for Election Week Thursdays: On the positive side were Kennedy victory and George W. Bush's second term win; on the negative were Reagan's first term and both Obama terms.

If we extend our focus to a 116-year look back in the Dow, a total of 30 elections, the pattern is not substantially different.

Since its inception on May 26th 1896, the Dow daily closes have been 52.20% positive, 47.21% negative and 0.59% unchanged. The average daily gain over the past 116 years is 0.026%. A key difference we see in this longer look back at election week is exuberance of the Wednesday market gains for those early elections -- 1896 to 1912. And we also see consistently positive Thursday performance from 1928 through Eisenhower. In fact, the first and third FDR elections were both four-percent-plus days. At the opposite end of the scale, Obama's -4.85% on post-election Thursday in 2008 and his -1.38% yesterday are the worst and fourth worst post-election Thursdays since 1886. McKinley's first term and Reagan's second term are the second and third worst post-election Thursdays.

We'll take one more look at presidential election week in market history after we have the Friday-after index closes for Obama's second win.