- IG has examined 95 years of indices trading to identify certain recurring themes across historical US elections
- Elections have traditionally led to stock market ‘relief rallies’, with the Dow Jones rising 6.4% on average in the following six months
- A split congress has previously been positive for the S&P 500, leading to average gains of 30.6%
- Democrat claims that stock markets are statistically in favour of their party overlook surrounding macroeconomic events
Stock markets are influenced more significantly by Federal Reserve policy than presidential, as well as by macroeconomic events beyond the control of commander-in-chief. The past 95 years, however, offer a few key principles which may guide investors looking to trade indices around the election.
IG’s research has identified a historical tendency towards stock market rallies in the wake of election results, irrespective of the winning party. They found that the Dow, for instance, rose an average of 6.4% within the first six months of presidency.
There’s encouraging news, too, for investors lamenting the loss of a proven presidential candidate: two thirds of newly-elected presidents have had a positive effect on both the Dow and S&P 500 in their first six months.
IG’s research also highlights the influence of Congress’ party affiliation on past stock market response. IG found that:
- The S&P 500 gained an average of 30.6% in the four years since 1929 when a Democrat won presidency but Republicans controlled at least one chamber of Congress
- The S&P 500 gained an average of 21.4% in the 34 years since 1929 when Democrats won both presidency and the two chambers of Congress
IG is quick to caution against drawing a link between stock market success and party politics, however. To do so would disregard macroeconomic events over which presidents and their policies have had little to no control.
Democratic success has often been down to good fortune – surrounding matters such as oil, defence spending and international growth – rather than fiscal policy. Citing the 227% returns of Bill Clinton’s presidential tenure as a prime example, IG undermines the notion that historical precedent suggests the stock market favours one party over the other.
IG is a global leader in online trading, providing fast and flexible access to over 10,000 financial markets – including shares, indices, forex, commodities and binaries.
Established in 1974 as the world’s first financial spread betting firm, IG’s aim is to become the default choice for active traders globally. It is an award-winning multi-platform trading company, the world’s No.1 provider of CFDs* and a global leader in forex, and it now offers an execution-only stockbroking service in the UK, Ireland, Germany, Austria and the Netherlands.
It is a member of the FTSE 250, with offices across Europe, Africa, Asia-Pacific, the Middle East and the US, where it offers limited risk derivatives contracts via the Nadex brand.