The Number One Reason Why Investors Should Rejoice
The presidential election is over.
Or maybe it’s not.
I’m writing this on Tuesday as Americans cast their votes. And if the final polls are any indication, this election’s going to be another nail-biter.
The final Rasmussen Reports daily tracking poll shows that 49% of voters support Mitt Romney, while 48% support President Obama.
And the final POLITICO/George Washington University Battleground poll shows Mitt Romney and President Obama each claiming 47% nationally.
Heck, this email might be hitting your inbox before a final winner is even declared!
Regardless, it’s only a matter of time before one political party (and half the nation) is munching sour grapes, while the other half rejoices.
As investors, though, we should all be rejoicing. Here’s why…
Hail to the Chief!
I’ve told you countless times before that elections are good for stocks. (See here, here, here , here and here). Each time, though, I only focused on the average returns over the course of the entire election year.
Today, I want to focus on just the post-election period. It’s equally promising…
On a probability basis, “The S&P 500 has posted gains two-thirds of the time from the election through year-end,” according to LPL Financial’s Jeff Kleintop.
And regarding actual returns, during presidential election years going back to 1928, the S&P 500 has rallied an average of 0.9% in November and 1.7% in December, according to Bespoke Investment Group.
Given this history, my bold prediction last week doesn’t seem so bold now does it? Well, now I’m even more convinced that a year-end stock rally is imminent.
You see, stocks tend to cruise even higher during close elections like we’re seeing this year. No matter if the incumbent or challenger wins.
After examining the closest elections of the last 100 years, JP Morgan’s (NYSE: JPM) Chief U.S. Equity Strategist, Thomas Lee, says, “Markets rallied following close elections by 3.3%, regardless of winner.”
He adds, “When the challenger (or party challenger) won, markets tended to rally even more strongly, gaining nearly 6% on average.”
Indeed, my own number-crunching back to 1944 reveals that the S&P 500 goes up an average of 2.08% when a candidate wins the popular vote by less than three percentage points.
And looking at the post-election period in general, the Index has increased by 0.72% on average. So, close race or not, we’re in store for gains either way.
There is one caveat, though…
Stocks hate uncertainty. So a winner needs to be declared quickly for this post-election stock rally to materialize.
Case in point: In 2000, it took five weeks to declare George Bush the winner over Al Gore. As a result, stocks tanked 7.8% after Election Day.
As Jack Albin, Chief Investment Officer at BMO Private Bank, says, we need “a clean and quick outcome.”
Agreed. Both for our own sanity – and for the health of the stock market.
Bottom line: Not everyone’s going to be in a celebratory mood once the winner of the presidential election is announced. But considering it removes one of the biggest uncertainties holding back the stock market, investors have reason to rejoice either way.
Ahead of the tape,