However, volatility has historically subsided post-election day and returns have been solid.As we enter October, the U.S. presidential election is just over a month away. In past presidential election cycles, the period leading up to election day has been fraught with stock market volatility, due mainly to the heightened sense of uncertainty.
Even in the month of September, typically one of the most volatile months on the calendar, the S&P 500 gained 2% and the Nasdaq rose 2.7%. “This election poses uncertainty, and markets hate uncertainty,” wrote Fehr. “However, that election volatility is more reflective of the market repricing potential new policy proposals, instead of an implication that the election outcome represents a win-or-lose scenario.”As quickly as volatility rises leading up to election day, it drops after it. Historically, the VIX has plummeted after election day from 22 to below 16 after about a week. After around 30 days the VIX is at around 15.
But from election day through year-end, markets have historically been strong. Going back to 1945, the market was positive after the election until the end of the year in all but three presidential election years. And stock markets have gained more than 10%, on average, one year out from the election.Of course, there is no guarantee that this cycle will fall in line with past cycles, but Fehr points out that long-term performance is more about fundamentals than the occupant of the Oval Office.
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