What Will the Election Do to the Market?

Wall Street had a rather calm summer. Will volatility increase before and after Election Day?

So far, the market is performing roughly in line with historical patterns. In 19 of the prior 22 presidential election years (opens in new tab), Standard & Poor's 500-stock index advanced from June through October. The median gain for the index during that five-month period: 4.1%.

During those 22 election years, the S&P averaged a gain of 1.5% in June, 1.9% in July and 3.0% in August. This year, the S&P rose 0.1% in June and rallied 3.6% in July. It was up ever so slightly for the month of August, a gain that represented its sixth straight monthly advance. Everything's good—so far.

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In past election years, July and August have been the most volatile months. The yearly standard deviation for the S&P averaged 18.6% during the past 22 election years, but volatility averaged 28.8% in July and 30.3% in August of those 22 years. July and August were relatively calm this election year, but September not so much.

Whoever wins the election, the status quo will likely remain on Capitol Hill. As a Morgan Stanley report (opens in new tab) commented in July, "Current evidence suggests the U.S. elections in November won't yield outcomes that substantially change market fundamentals." Morgan Stanley analysts foresee Clinton winning the election and Republicans retaining their majority in the House of Representatives. In that scenario, Clinton wins, but her administration has difficulty enacting any of its planned reforms.

The Smart Money

If the Republicans lose control of the House, the Democrats win the Senate or Trump wins, Wall Street could see some pronounced short-term volatility, which is also an outcome that could possibly affect market fundamentals. Possibly. But frankly, none of the aforementioned outcomes is considered likely at this point by the general consensus also known as the market. Even if one candidate or the other wins by a landslide, their most ambitious proposals may never get off the ground. As Morgan Stanley asserts, "attempts by Clinton or Trump to exercise transformative power domestically will be stunted" by a lack of support in Congress.

Should stocks rollercoaster before or after Election Day, keep calm. Any disturbance may be short-term, and your investing and retirement saving effort is decidedly long-term. The election is a big event, but earnings, central bank monetary policy and macroeconomic factors may have a much bigger impact on the markets this fall.

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment<.