What happens to stocks during election week? In general, the market has a slightly bullish bent during election week, but you can slice it different ways. Since 1928 there have been 24 elections. The average percentage change for the S & P 500 in the week of the election is up 0.7%, with the index gaining 63% of the time, according to Birinyi Associates. However, the last 4 days of the week (that is, Tuesday–Friday), the S & P is down an average 0.4% and up only 58% of the time. As for election day itself, 8 of the 10 elections in the past 40 years have been up days, with an average gain of 0.9%, according to CFRA Research (Note: the stock markets were closed on the Tuesday of election day prior to 1984). Many find it hard to believe, but with a few exceptions it has not mattered much which president is in the White House in terms of the stock market. Nasdaq Chief Economist Phil Mackintosh noted that one key issue in returns is whether there was a recession. The average total return for four-year terms that overlapped with a recession was 30% for the S & P 500, compared to 62% for those that didn’t, he said. This was true, regardless of whether there was a Democrat or Republican in the White House. What determines trading for the rest of the year What matters more is what will happen for the rest of the year. That is largely determined by the state of the economy and earnings. Third quarter earnings have been rising as we get near the end of the reporting season and, more importantly, fourth quarter earnings are expected to rise more than 10%, led by technology up 14.6%. Analysts have not been significantly cutting those estimates. That is why the S & P 500 is only 2% below its historic high. S & P 500 earnings estimates Q3: +8.4% Oct. 1: +6.0% Q4: +10.7% Technology: +14.6% Source: LSE Seasonals are important as well The seasonal trend is very strong. Goldman Sachs noted that this begins the best trading period of the year for U.S. equities. There’s a number of reasons for this: many mutual funds and pensions end their fiscal year October 31, and they are often sellers, and 2) many U.S. corporations can again begin repurchasing stock after a “blackout” period for third quarter earnings. In an election year, there is also a tailwind because the end of the election is a “clearing event” for risk assets. You can also add in the other usual suspects: tax-loss harvesting and retail and institutional investing for the new year. Last week Goldman noted that in election years the S & P has tended to slightly outperform nonelection years: S & P 500 in the fourth quarter (median return from 10/27 to the end of year, since 1928) All years: +5.2% Presidential election years: +6.25% Source: Goldman Sachs