Does the Presidential Election cycle mean anything for the overall market? First, you’d want to logically make some type of connection as to why the election would impact the market. One might say that the ruling party would leverage government spending and payments to goose certain industries in order to give the market a little more ‘juice’. Some might point to the influence of the government on Federal Reserve policy and actions. I’m sure a few other reasonable hypothesis could be crafted in addition to the two obvious ones I’ve listed. Developing the proof to confirm such hypotheses would be rather difficult.
I’m not here to develop a model and pile on data to prove that the Presidential Election has the ability to direct the course of the market for the better part of a year. A lot of factors exist that have the ability to move the market and any election (small or large) does not occur in a vacuum. Keep this in mind as you look at the chart below.
The chart below looks at Presidential Elections from 1988 through 2016. The election is held on the first full week of November. The chart goes to the end of November. What I notice is that many election years are pretty darn tame. In just about every line chartered the first half to two-thirds of the period is rather dull. In our current year, the price changes we’ve seen are rather uncharacteristic compared to the other election years. Also, the ’08 election was uncharacteristic because it marked a period of time when the market fell apart (Great Recession). This would be one of those external factors that’s beyond any election.
My two takeaways from this simple chart
- The potential for greater market volatility should increase as we move closer to the election.
- The market is likely to stay pretty range bound until near or after the election. (Though the range set in the first four months of this year is pretty wide.)