Weekly Update

Seasonality of Returns in Presidential Election Years

Tagged: , , , , , , ,

Published August 21, 2020


As we head toward September and October, it’s worthwhile to remind ourselves that these months can be dangerous for stock investors. That’s particularly true in an election year. The chart below shows a gold line depicting the percentage of time that the market rises in that month. The bars tell us the average return for that month. Even though September and October rise more often than not, there have been some very bad returns in these months – for example, during the financial crisis in 2008. Those exceptionally bad returns drag down the average return for that month negative.

S&P 500 Monthly Returns & Percentage of Time Up

There appears to be a collective sigh of relief once the election is passed as December shows a gain over 80% of the time in a presidential election year. Our current month of August sports the best average return of almost +3%, with a gain almost 70% of the time. As we go to press this week, the broad market S&P 500 is indeed higher by +3% month-to-date. What will September and October bring us this year?

Market Update

Another quiet end-of-the-summer week on Wall Street with trading volumes approaching their lowest levels of the year. Stock market bulls used the quiet conditions to push the S&P 500 to a new record high, quite a milestone given where markets were only a few months ago. Monday delivered one of those quiet summer trading days with the S&P 500 edging up +0.3%. In recent days, investors have been wrestling with a realization that the economic recovery appears to be slowing down while Congressional action to extend stimulus measures remains stuck. However, that presumably negative input has not been enough to derail the momentum stocks have built up over the summer. Stocks ticked +0.2% higher Tuesday to push the S&P 500 to a new high. Strength in tech/consumer shares and a terrific report on housing provided some fuel for the market. But stocks dropped back -0.4% Wednesday on an afternoon selloff that commenced when the Federal Reserve meeting minutes (from July) expressed concern about the economic outlook and rising coronavirus case levels. An uptick in jobless claims set stocks back early Thursday before a rally in FANGMA stocks generated a recovery to a positive +0.3%, while the Nasdaq rose more than +1%. Friday delivered a quiet market with a slight +0.3% gain. It’s worth noting that retailers continued to handily beat earnings estimates this week, with Target, Walmart, and Home Depot all seeing their stocks hit record highs in recent days.

A mixed market this week with the S&P 500 adding +0.77%. The Nasdaq 100 (QQQ) powered +3.57% higher by strength in Apple (AAPL) and other FANGMA stocks. The small-cap Russell 2000 (IWM) dipped -1.58% as the rally in financial and energy shares met resistance.

Warm wishes and until next week.