Stock Market After Election History: What History Reveals

The stock market's performance after elections can be a wild ride, but history has some valuable insights to offer. In the past, the market has often experienced a brief boost in the days immediately following a presidential election.

One notable example is the 2004 election, where the Dow Jones Industrial Average rose by 2.6% in the two days following the election. This suggests that investors may be optimistic about the future after an election.

However, this optimism can be short-lived, as seen in the 2008 election, where the market began to decline just a few days later.

Worth a look: Election Year Stock Market History

The S&P 500 has a history of declining in the session and week following voting days. These losses are often erased within a month.

In fact, CNBC data shows that stocks tend to recover from these losses quickly. The S&P 500 has averaged declines in the session and week following voting days, but has regained most or all of those losses within a month.

The S&P 500 has experienced a wide range of performance on the day after the election, from a decline of 5.53% in 2008 to a gain of 0.98% in 2004.

Here's a breakdown of the S&P 500's performance on the day after the election for the past few presidential elections:

The average performance of the S&P 500 on the day after the election is a decline of 0.46%, but it's worth noting that this is based on a wide range of performance over the years.

Worth a look: Stock Market Performance History

Market performance after elections can be a complex and unpredictable phenomenon. The S&P 500 has seen its best election-year performance since 1936, with a compound annual growth rate of 12.1% from Trump's surprise election in November 2016 through Biden's 2020 victory, according to CFRA.

The Dow Jones Industrial Average has shown a mixed bag of performances after elections, with an average gain of 1.34% the day after the election, but a median loss of 0.41% over the same period. Here's a breakdown of the Dow's performance after elections:

Some analysts believe that a Republican sweep could be beneficial for stocks, while others think a Trump victory plus a gridlocked Congress would be a better outcome.

Markets tend to prefer stability over surprises, which is why volatility often ramps up during election years.

Stock market history suggests that changes to White House policy, economic strategy, and regulations can fuel jitters among traders.

The CBOE Volatility Index (VIX), also known as Wall Street's fear gauge, tracks the volatility of the S&P 500 and hovered just below 20 on Monday.

The VIX has averaged 20.7 during election years, compared to 19.4 in non-election years, based on data from Stifel.

Historical data suggests that the VIX tends to increase by an average of 25% from September to October in election years.

The VIX has actually declined in that period during non-election years.

The VIX has averaged 18.6 since the start of September this year.

Historical charts from Morgan Stanley illustrate that the VIX often keeps climbing in the coming weeks before seeing a sharp drop-off after the election.

A unique perspective: Stock Market History Chart Last 100 Years

The S&P 500 enjoyed a compound annual growth rate of 12.1% from Trump's surprise election in November 2016 through Biden's 2020 victory, according to CFRA. That's the third best performance in modern history.

Investors are anticipators, and they don't wait for the actuality of policy changes. They start pricing in policy changes from the moment the election is held, not from the moment the president is sworn in.

The S&P 500's growth rate of 14.1% under Trump is second all-time, just ahead of 13.8% under Barack Obama. However, this metric starts from the moment Trump was sworn in, not from the election day.

Trump's unorthodox economic ideas and unpredictable policies are perceived as a "political risk" in the market. This uncertainty can cause market fluctuations.

The forecasting firm Macroeconomic Advisers found that investor perception of stock-market risk rose with Mr. Trump's estimated chance.

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The stock market has historically performed better under Democratic presidents, with an average annual gain of 9.7% compared to 6.7% under Republicans. This is according to analysts at S&P Capital IQ.

Democrats have enjoyed stronger market gains and faster economic growth, with the S&P 500's growth rate under Democrats at 10% compared to 6.7% under Republicans. This is a significant difference.

The only two presidents who saw negative market returns during their tenure were Republicans: Richard Nixon and George W. Bush. Nixon was in office during the Arab oil embargo, and Bush closed out his second term as the financial crisis of 2007-08 mutated into the Great Recession.

Historical evidence suggests that the market and economy perform better under Democratic presidential leadership. This is a conclusion reached by Brian Belski, chief investment strategist at BMO Capital Markets.

The S&P 500's growth rate under Trump is second all-time, at 14.1%, but this is likely due to a combination of low inflation, low interest rates, and tax cuts.

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Tax cuts don't necessarily boost stocks, despite what you might think. In fact, BMO found that there is "little proof" that lower individual, corporate, and capital gains tax rates boost the market.

The market has generally performed better during times of higher, not lower, tax rates across changes in all three categories. This goes against the prevailing wisdom that tax hikes destroy markets.

The Trump administration's 2017 tax cuts are a prime example. While they were a signature policy of the Trump presidency, there's no clear evidence that they significantly boosted the market.

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