by Bill McBride on 10/28/2012 01:45:00 PM
Sunday, October 28, 2012
For fun on a Sunday: I've been asked frequently how investors will react to the election. First, every election is different. Sometimes it is obvious who is going to win, and the election results are completely expected (like Reagan in 2004 or Clinton in 1996). Other times the election is close (this election is close although I expect President Obama to be reelected).
Sometimes the economy is clearly headed into recession like in 2008. The 2000 election was during the ongoing decline following the stock bubble, and the election was especially unsettling because the Supreme Court made the final decision.
There are always some partisan analysts who predict doom if their candidate doesn't win (see Bruce Bartlett's Partisan Bias and Economic Forecasts). But any "doom" related to the election will be in the intermediate or long term, not in 2013.
The following graph shows the change in the S&P 500 from election day through the end of the year for all elections since 1952. Note: The number of trading days varied mostly because of the timing of the election.
Click on graph for larger image in graph gallery.
The two worst performing years - no surprise - were 2000 and 2008. The 2000 election followed the stock market bubble, and the economy was collapsing in 2008.
The other elections with a slight negative change were 1956, 1964, and 1984. These were all presidents being reelected and the results were obvious in advance: Eisenhower won reelection with 57.4% of the vote, Johnson won with 61.1%, and Reagan with 58.8%.
But most of the time the market has increased following the election, and the median increase from election day to the end of the year was 3.6%. Every election is different and this is NOT investment advice!