The Day After Presidential Elections: Usually Not Good for the Market (Updated)

November 7th, 2012

by Doug Short

Note from dshort : I've updated the table in this commentary with today's gruesome post-election performance in the S&P 500. To repeat my observations in today's market close update:

Today the S&P followed the time-honored pattern of post-election selloff. Of the 16 presidential elections since the middle of the last century, the close before the election has been a gain 13 times. The day after the election has posted a gain only six times. Today's 2.37% post-election selloff was the second worst in 60 years, the worst being the -5.27% gut-wrencher the day after Obama's first victory.

Earlier today : As I type this, about 90 minutes after the US equity markets opened, the major indexes are selling off. The S&P 500 is down over two percent. In my S&P 500 daily update for yesterday, I pointed out that Election Day or the day before prior to 1984 (when it was a market holiday) have usually recorded gains, at least as far back as the middle of the last century.

But what about the day after elections? The pattern of "second thoughts" appears to be the norm. Here is a table showing the 16 Election days starting with Dwight Eisenhower's 1952 win over Adlai Stevenson. It's the same table I posted yesterday, but this version adds the S&P performance for the day following the election.

Obama's first win has the record over this timeframe for the best pre-election market performance. Unfortunately, the selloff on the following day also set a record. Of course November of 2008 was a grim time for the markets, just a few weeks after the Lehman Brothers bankruptcy. In fact, the S&P 500 fell another 5.03% on the Thursday after the 2008 election.

Fortunately, the Financial Crisis is behind us, although there's still some clean-up work to be done. But the back-page news item that's repeatedly showing up as a headline today is on the Fiscal Cliff.

The market will be especially interesting to watch while a lame-duck split Congress begins to focus on the grim politics of the US budget and the expiration of the Bush tax cuts.

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