US elections lead to stock market relief rallies
Fresh research compiled by IG has discovered that on average the Dow Jones rises by 6.4% in the six months following a US election. Whatever your opinions on the election of Donald Trump as the 45th President of the USA, for investors it could actually be good news. A Republican in the White House and controlling the senate has been shown to create a high average S&P 500 gain. Analysing data from 95 years of indices trading, dating back to elections from 1921, the findings are incredibly useful for all stocks and shares investors.
The Dow Jones Six Months After an Election
There is a historical tendency towards stock market rallies in the immediate aftermath of an election, no matter who the winner was. Within the first six months of presidency the Dow Jones rose on average by 6.4%. Of course, this has been higher and lower throughout the years.
The largest rise was in 1932 after Franklin Roosevelt was elected. His New Deal transformed the USA’s economy almost immediately and in the first six months saw the Dow Jones increase by more than 50%. More recently, for Barack Obama, the Dow Jones dropped in value within his first six months due to the global financial crash yet rose by over 15% when he was re-elected in 2012.
Democrats vs Republicans
There may not be a clear trend between a Democrat or Republican nominee winning the election and the Dow Jones’ performance afterwards, but a unified or divided Washington does have an effect. On average the S&P 500 gain since 1929 has been 21.4% with a Democratic White House and Congress yet just 16.0% when both have been Republican.
A divided Washington with a Democrat as President has led to the best performing S&P 500, with it rising by 30.6% on average, while divided with a Republican in charge resulted in the lowest of just a 4.1% increase. Either way, it has always risen, and under Trump it looks like the same trend will continue.
New President Effect
With a brand new President rather than a re-elected one, it could be assumed that the uncertainty would lead to a drop or less positive effect on the US stock markets. However, under Hoover, Roosevelt, Truman, Kennedy, Johnson, Bush, Clinton and George W Bush in their first or only terms, it grew. While for various second terms it has at certain times dropped but also risen. So, under Trump it could see the S&P 500 and Dow Jones either rise or fall.
Macroeconomic Factors
The performance of the Dow Jones and S&P 500 is not purely down to election results. Many macroeconomic factors play a part and some Presidents have even taken over during financial transition stages (such as at the beginning of the Great Depression or the more recent global financial crash). Presidents and their policies have little control over these circumstances and they must always be taken into account. Investment decisions shouldn’t be based on just who has been elected as President.
As this data demonstrates an overall trend of rising stock market value in the first six months of a President’s term, investors may want to use it to help make informed decisions in the short-term.