While the 3% post-election sell-off came as a surprise to many, Jeff Hirsch Editor-in-Chief of the Stock Trader's Almanac saw it coming. According to his historical market tracking data, November is typically a weak month for the broader market after an incumbent president is re-elected. Looking forward, December should pick up steam due to typical year-end behavior. Since 1944, the S&P 500 has posted an average monthly gain of 1.8% for Decembers following an incumbent re-election.
But once 2013 rolls around, there could be cause for concern.
"We've got a sitting president that has won re-election, normally the post-election year is not great, you see a sell-off," says Hirsch. "Sitting presidents winning has not been the greatest performance, it's usually flat to down."
Check out Hirsch's chart below showing the Dow Jones Industrial Average's performance in the year following an election.
Source: Jeffrey A. Hirsch & Stock Trader's Almanac
Further, taking into account political, economic and technical conditions, which include a split Congress, fiscal cliff negotiations, an economy struggling to grow at 2% with stubbornly high unemployment, and the S&P 500's recent dip below the 200-day moving average, combined with Hirsch's four-year cycle data, and it's not difficult to find reason to pause here.
"You might want to think about a year-end exit for the market, even though we're still in that seasonal period that's strong," says Hirsch.
Bottom line, as Hirsch explains in the attached video, stay cautious heading into 2013.
