As we step into the month of October, the U.S. presidential election looms just over a month away, stirring up the typical market volatility that tends to accompany such events. Yet, as history has shown us, the period following election day often tells a different tale of market performance. Let’s delve deeper into the dynamics at play during this crucial time.
October in Presidential Election Years Is More Volatile
- Stocks historically perform well in presidential election years, with 2024 showing promising figures.
- The S&P 500 and Nasdaq have both seen impressive gains through the first three quarters of the year.
- Comparing recent presidential election years, 2020, 2016, and 2012, this year’s performance stands out.
- Despite volatility in August and September, the markets have still managed to secure robust gains.
Market Volatility Pre-Election
- Historically, October in presidential election years tends to be more volatile.
- The VIX, a measure of market volatility, typically rises as election day approaches.
- Markets dislike uncertainty, which tends to peak closer to election day.
Post-Election Returns Have Been Solid
- Volatility tends to drop significantly after election day.
- The market refocuses on prevailing conditions once uncertainties are replaced by a clearer policy outlook.
- A contested election could extend post-election volatility.
Three Trends to Look For
- Long-term performance is more about fundamentals than the occupant of the Oval Office.
- Focused on three trends: a growing economy, a Federal Reserve easing policy, and accelerating corporate earnings.
- These factors should help validate rising valuations and stock prices, broadening out the bull market.
In conclusion, while the lead-up to the U.S. presidential election may bring about market turbulence, historical trends suggest that post-election returns have been favorable. By understanding the key factors at play and focusing on long-term fundamentals, investors can navigate through this period of uncertainty with confidence.