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Does An Election Year Affect the Stock Market?

In a nutshell, nobody knows for sure what will happen to the stock market during an US Presidential election year. Nonetheless, many investors will try to predict the outcome of the US stock market in yet another election year in 2020.


Here are some of the statistics regarding US Presidential Election years. Since 1900, S&P 500 Index (SPX) has returned averaged returns of around 9.5%. This match the very long-term historical SPX average return. In general, the US stock market tends to rally during an election year with better performances when a Republican wins the US Presidency. Averaged returns are 15.3% when a Republican was elected (11 times) and 7.6% average return when a Democrat won (12 times).


When you see a headline news that states the stock market will crash if candidate x is elected, or will rally sharply if a particular candidate wins the election, please take this with a big grain of salt as there’s no way to predict the stock market performance with any accuracy. There are simply too many variables and too many moving parts to accurately determine how things will play out.


Nonetheless, a brief review of the historical tendencies of US Presidential elections we can reasonably say that regardless of who wins the Election in November, SPX will likely be positive by the end of the year.


If SPX adhere to the long-term historical returns of around 9.5% then with a closing SPX price of 3,230.78 (12/31/19) this would imply a rally of 306.92 points or SPX target closer to 3,537.70 by the end of the year. Under the scenario of a Republican winning election or Trump being reelected then based on an average Republican President returns of 15.3% or +494.31 points this would bring SPX to target of 3,725.09. On the other hand, if a Democrat wins election then applying average returns of 7.6% or +245.54 points this would result in a SPX target of 3,476.32.


It is interesting that a large 2-year broadening and/or head and shoulders bottom breakout above 3,059 during 11/1/19 suggests +594.33/+681.40 points or SPX targets to 3,653-3,740.


Enclosed below are charts of the last 7 US Presidential Election years broken down by monthly SPX performances.


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of Stockcharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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