November 01 2020 ... Changing of the Guard -- The US Presidential Election Historical Overview

Changing of the Guard -- The US Presidential Election Historical Overview

The Gregorian calendar (thanks to Pope Gregory XIII) blesses everyone with an extra day once in four years with a Leap Year. In the same spirit the voters in the USA are blessed or tortured for that additional day with a Presidential Election based on over the top campaigns. This year 2020 has been no different with pollsters working overtime to declare their pronouncements of who is likely to win the Presidency. 

If the pollsters are any indication it appears that there is a good chance that the Democratic candidate will upset the existing Republican President. A Changing of the Guard seems to be in the offing. It is only natural to conjecture the impact on Stock Market returns. 

 Table-1 … S&P 500 Value Prior to Changing of the Guard 

 

Year	Election Date	Ruling President	President Elect	Friday Date*	S&P-500*
2020	11/3/2020	Trump		10/30/2020	3,269.96
2016	11/8/2016	Obama	Trump	11/4/2016	2,085.18
2008	11/4/2008	Bush Jr	Obama	10/31/2008	968.75
2000	11/7/2000	Clinton	Bush Jr	11/3/2000	1,426.69
1992	11/3/1992	Bush Sr	Clinton	10/30/1992	418.68
1980	11/4/1980	Carter	Reagan	10/31/1980	127.47
1976	11/2/1976	Ford	Carter	10/29/1976	102.90
1968	11/5/1968	Johnson	Nixon	11/1/1968	103.06
1960	11/8/1960	Eisenhower	Kennedy	11/4/1960	54.90
1952	11/4/1952	Truman	Eisenhower	10/31/1952	24.52

Note 1: The Friday Date represents the Friday weekend prior to the November election date.

Note 2: The S&P-500 Column represents the value of the S&P 500 Index on the Friday weekend  prior to the November election.

Table-2 … S&P 500 Performance during Changing of the Guard 

 

Year	S&P-500*	7-Days Return%	30-Days Return%	1-Year Return%	20thJan Return%	Aug-Oct Return%
2020	3,269.96					-0.04%
2016	2,085.18	3.80%	5.12%	24.11%	8.93%	-2.18%
2008	968.75	-3.90%	-7.48%	6.96%	-16.88%	-23.56%
2000	1,426.69	-4.26%	-7.81%	-23.80%	-5.90%	-0.10%
1992	418.68	-0.26%	2.74%	11.74%	3.51%	-1.30%
1980	127.47	1.34%	10.24%	-4.38%	3.28%	4.77%
1976	102.90	-2.02%	0.24%	-10.00%	0.07%	-0.52%
1968	103.06	0.86%	5.15%	-5.76%	-1.33%	5.80%
1960	54.90	1.77%	0.89%	26.54%	9.22%	-3.82%
1952	24.52	1.06%	4.65%	0.08%	6.61%	-3.46%

With Election campaigns being long drawn, stock market participants have enough time to evaluate and make necessary adjustments appropriately before the election. It is pertinent to note that a negative return during the three months (August to October) prior to the November election has indicated a Change of the Guard in every election since 1952 with 1956 being the only exception. The values in Table 2 reflect this pattern, though it is no guarantee that 2020 is going to be a repeat of the general pattern.

Worst Case Scenario: 

In 2008 there was a Changing of the Guard, with a Democratic President elected taking over from a Republican administration. However stock markets continued their free fall for the subsequent months. The Financial Crisis caused the S&P-500 Benchmark Index to lose close to 17% prior to the inauguration date of January 2009. The stock market meltdown stopped only in March 2009 and subsequently moved upwards. By November 2009 it had rallied for an annual gain of close to 7%.

Are we in a similar situation to 2008, the numbers would indicate most likely not. The major US banks though under loan pressure are not close to bankruptcy. In 2020 we have a pandemic induced economic crisis which is quite different.

Best Case Scenario: 

In 1960 a youthful President John Kennedy from the Democratic party took over from a relatively older President Eisenhower the hero General of World War II. It was in many ways the passing of the torch to a newer generation. The stock market reflected it by being buoyant in the subsequent months, with a rise of 9.2% by January 1961 inaugural day and an annual return of  26.5% by November 1961.    

By no means can we conclude that current Democratic candidate Biden is a charismatic leader in the mold of JFK. Hence we may not expect similar returns in the days ahead.

The most cliched words being “this time it is different”, one has to be cautious in setting forward expectations. It is almost certain that risk appetites are going to be moderated till clarity emerges about future fiscal stimulus and advent of treatment options and vaccines. 

The markets have been flat for the past three months and have moved sideways. If the election results are decisive one should expect risk appetites to resume, otherwise more of the same with political gridlock being a drag on fiscal stimulus.

There are many interesting quotes on elections, we shall end it with the Iron Chancellor who unified Germany in the 19th century. People never lie so much as after a hunt, during a war or before an election .... Otto von Bismarck.