What Will the Election Do to the Market?

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Mike Bohne Mike Bohne is a financial advisor with Consumers Financial Group.
  • Posted on 10/1/2016
Wall Street has had a rather calm summer. How about fall? Will volatility increase before and after Election Day?
Will volatility seize Wall Street? Or will calm prevail?

Wall Street has had a rather calm summer. How about fall? Will volatility increase before and after Election Day?

So far, the market is performing roughly in line with historical patterns.
In 19 of the prior 22 presidential election years, the S&P 500 advanced from June through October. The median gain for the index during that 5-month period: 4.1%.1

During those 22 election years, the S&P averaged a gain of 1.5% in June, 1.9% in July, and 3.0% in August. This year, the S&P rose 0.1% in June and rallied 3.6% in July; it is up slightly for the month as August draws to a close. An August gain would represent its sixth straight monthly advance.1,2

In past election years, July & August have been the most volatile months.
The yearly standard deviation for the S&P averaged 18.6% during the past 22 election years, but volatility averaged 28.8% in July and 30.3% in August of those 22 years. (These July and August numbers, however, are a bit distorted as a result of the wild market turbulence of 1932. In that year, the S&P gained 55.7%.)1

Whoever wins the election, the status quo will likely remain on Capitol Hill. As a Morgan Stanley report commented in July, “Current evidence suggests the U.S. elections in November won’t yield outcomes that substantially change market fundamentals.” Morgan Stanley analysts foresee Clinton winning the election and Republicans retaining their majority in the House of Representatives. In that scenario, Clinton wins, but her administration has difficulty enacting any of its planned reforms.3

If the Republicans lose control of the House or Trump wins, Wall Street could see some pronounced short-term volatility, which is also an outcome that could possibly affect market fundamentals. Even if one candidate or the other wins by a landslide, their most ambitious proposals may never get off the ground. As Morgan Stanley asserts, “attempts by Clinton or Trump to exercise transformative power domestically will be stunted” by a lack of support in Congress.3

Should stocks rollercoaster before or after Election Day, keep calm.
Any disturbance may be short-term, and your investing and retirement saving effort is decidedly long-term. The election is a big event, but earnings, central bank monetary policy, and macroeconomic factors may have a much bigger impact on the markets this fall.

Michael Bohne, CRPC® may be reached at 847-672-1823 or
[email protected]

Stuart Cooper, CRPC® may be reached at 847-672-1833 or
[email protected]

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
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Citations.
1 – cnbc.com/2016/06/03/history-shows-stocks-rally-during-presidential-elections.html [6/3/16]
2 – money.cnn.com/data/markets/sandp/ [8/25/16]
3 – money.cnn.com/2016/07/13/investing/donald-trump-stock-market/ [7/13/16]