Note from Ashley Cassell, Managing Editor, TradeSmith Daily: We hope you’re able to have a restful and fun Labor Day holiday, as we are here at TradeSmith. Our offices — as well as the U.S. markets — are closed, and our Customer Success team will be back tomorrow.
In the meantime, we thought this would be a good day to zoom out to a broader view on the markets…
The closer America gets to Election Day, the greater impact election cycles could have on stock prices. So below we’re sharing a historical study on how the market has reacted to a new presidential term based on which party wins. You’ll want to keep these findings in mind as election season heats up…
We’ll be back tomorrow with more data-driven insights. Until then, read on and enjoy your weekend. |
Election Year Investing: Who Will Win? By Michael Salvatore, Editor, TradeSmith Daily Depending on your view, I come bearing great or terrible news. We are 63 days from Election Day. Millions of Americans will line up to vote, or mail in, their personal preference for the next president. Then, roughly half the country will bemoan the result. Politics will be what they’ll be. Here at TradeSmith, we’re much more interested in the investment story of the next president – as we all ought to be. After all, it’s got just as much of an impact on our day-to-day… if not much more. Election years are prime study material for seasonal investing strategies. There are discernible and tradable trends that happen in the lead up to every election. And, as the campaign ads and bitter rhetoric continue to ramp up, we should soon start seeing those trends manifest. What can we expect, and how can we trade it? Here’s how I’m casting my vote… Donkey Markets vs. Elephant Markets Let’s get to the fun stuff right up front. There have been 24 presidential elections since 1928 including Depression-era President Herbert Hoover. That’s seen 11 Republican victories and 13 Democrat victories. Per research from Morgan Stanley (and adding data from 2020), markets rise an average of 11.59% during an election year, no matter who winds up winning. That sounds like good news. There is a clear and strong upward bias on election years, independent of party. The average return for every year since 1928 is 9.9%. That means election years are about 17% more bullish than the long-term average. But the thing is, the S&P 500 is up nearly 20% year-to-date – about twice the expected return of your typical election year. Granted, this and 2023 have not been ordinary years. The breakthrough of AI has accelerated a lot of value. Still, it’s something to be wary of. If we keep track with previous election years, stocks could give up half their gains before we see 2025. Getting back to presidential cycles, there were only three years of negative returns. Roosevelt’s victory year in 1932, down 8.2%…, his third victory in 1940, down 9.8%… and Obama’s first victory in 2008, down 37%. And Republicans can celebrate – they have had just one election year stock market loss: 
And this is really where things get interesting… Democrat-winning years actually tend to drag the returns down. Including 2020, the average return during Team Donkey years is 8.4%. When Team Elephant takes it, returns jump to 15.2%. With this in mind, we can potentially, kinda-sorta predict who the next president will be based solely on S&P 500 performance. Like I said, right now the S&P 500 is almost 20% higher this year. That’s a pretty good signal that Republicans are set for victory. Investor confidence is speaking loudly in their favor. If we’d put in a number something shy of that, say 6%, we might want to start banking on an incumbent win. Polls are broadly pointing to Kamala Harris winning the presidency right now, after her swap-in with Biden was met with near-unanimous approval. But the statistics I’ve just shared – not to mention the betting markets – paint a very different picture. If it were me… I’d prepare for an election shock in Republican’s favor. And as for how to do that, I’d look to the Freeport Society’s chief investment strategist Charles Sizemore. Charles has his own opinions about a Donald Trump vs. Kamala Harris outcome, as do we all. But most importantly, he has discovered an election-year play that has delivered an annualized average gain of nearly 50% in just three months’ time… before every single presidential election… going back 44 years… with a 90% chance of this pattern happening. And our TradeSmith Seasonality tool helped him spot this pattern. When Charles made a call like this in April – back then, Lockheed Martin (LMT) was the stock he picked – shares proceeded to climb 18% over the course of four months. Seasonality is, of course, becoming more and more dramatic the closer we get to Election Day. All the more reason why it’s well worth hearing Charles out on this new pick. Go here to watch the free presentation with full details. To your health and wealth,  Michael Salvatore
Editor, TradeSmith Daily | 
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