The Impact of the US Election on the S&P 500
The rise of the S&P 500 in 2023 and continuing into the third quarter of 3 may cause investors to start worrying that US stocks will adjust their base from weak economic and employment figures, which may result in a US economic recession, including profit-taking, which can occur at any time when investors are uncertain about the situation ahead. This year, there is an important event in the US election, which may cause important policy changes that affect the overall economy, international politics and the stock market.
A look back at how the US elections have historically impacted the S&P 500 shows that the index tends to be more volatile during election years due to uncertainty over the outcome.
According to Wells Fargo, the lead-up to an election day often sees major market indices decline, with the average S&P 500 index losing 4.3% in the two months leading up to an election, consistent across all presidential election cycles. In the past six cycles, both small-cap and mid-cap indices have also declined. Defensive sectors such as consumer staples, utilities and healthcare tend to perform well in the lead-up to an election, with consumer staples (+6%), utilities (+3.9%) and healthcare (+3.4%) the best seasonal performers. In contrast, sectors such as real estate have lost 2.3% and 3.5%, respectively. The index’s performance is also influenced by other factors, such as Fed policy.
However, in the medium to long term, the S&P 500 tends to perform better after an election, regardless of the outcome. And markets tend to perform better when there is political stability, especially if the government does not receive a majority in both houses of Congress, with no one party controlling both the presidency and Congress, which can lead to neutral policies. So in the long run, elections are considered to be good for the market as a whole.
For investors who are still concerned about market volatility, they may diversify some of their investments into low-volatility assets to gain more certain returns, such as bond funds and mixed funds.
Reference: https://www.investing.com/news/stock-market-news/how-do-us-elections-affect-the-sp-500-performance-3594923
