Investors worried about how Tuesday night's presidential debate between President Donald Trump and former Vice President Joe Biden will affect the stock market can rest easy.
If history is any guide, the market won't care what happens either way.
Presidential Debates Leave Few Bread Crumbs to Follow
As LPL Financial – registered investment advisor and broker-dealer – notes, the data from past debates going as far back as 1960 don't offer a clue as to how stocks react to the first debate, to say nothing of indicating which party might win.
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"Could stocks give a clue who will win the election based on how they do after the debate?" writes LPL Financial Chief Market Strategist Ryan Detrick. "Unfortunately, it doesn't appear to give any hints, as returns and winners are all over the place.
"Still, 2020 is unlike any year we've ever seen before, so we could be one Howard Dean gaffe or Ronald Reagan zinger away from a major sway in this election."
To get a sense of how pointless it is to look to the presidential debate for trading insights, check out LPL's "Chart of the Day" and consider just a few of the numbers:
- The odds of the market rising or falling in the session ahead are aren't far off from 50-50.
- There have been 12 first presidential debates since 1960. On average, the S&P 500 retreats 0.3% the next day. The median performance, however, is a gain of 0.4% for the broad market index. Neither of those outcomes are material.
- The days and weeks after the debate don't tell us anything useful either. Five days out, the market is higher 50% of the time. As for a month after the debate, again, stocks are positive 50% of the time.
- On average, stocks lose 0.9%, 1.8% and 2% in the five days, 10 days and one month following the debate, respectively. However, the median return is positive for all of these time frames, albeit at only fractions of a percent. Again, these returns are essentially immaterial.
- The data are skewed by the 2008 market meltdown.
The bottom line: Don't bother buying or selling stocks based on anything that happens in tonight's debate.
No, it's not a sucker's bet, but it is indeed a nothing bet.
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