What to Expect from Stock ETFs in an Election Year

ETF Trends

Although history never repeats exactly, the U.S. stock market often follows a script during presidential election years.

In a normal election year, the S&P 500 will likely drop in the first two months, show healthy gains in the months leading up to the summer conventions, decline quickly after the convention and recover toward the end of the year after all the uncertainty is over, Sam Stovall, Chief Equity Strategist at S&P Capital IQ, wrote in a research note.

History suggests the S&P 500 will likely rise 0.34% over the first 10 months of the year amidst the uncertainty of the presidential scramble and finish up 1% in the last two months.

The first days of January usually set the tone for the year. According to the so-called January Barometer, “as goes January, so goes the year.” The January Barometer has worked eight out of the last eight presidential election years. Historically, the S&P 500 has gained for the year after rising in January, with an average positive calendar year advance of 16%. If the S&P 500 dropped in January, the markets declined on average 4.5% over the year. [ Stock ETFs Disappoint on Presidential Cycle ]

On a quarterly basis, since 1945, the S&P 500 has risen on average 1.9% in the first quarter, 1.9% in the second quarter, 0.4% in the third quarter and topped it off with a 3.8% gain in the fourth.

For market sectors, the energy sector posted the strongest gains at 15.6%, followed by consumer staples with 10.2% and financials with 9.8%. On the other hand, telecom services was the worst performing sector with a 6.1% decline, followed by materials at a slight 0.7% increase and information technology at a 0.9% rise.

Additionally, the S&P 500 has also been a good predictor for the next presidential winner, according to Stovall. Whenever the index rose between July 31 through October 31, the incumbent has usually been re-elected, with an 88% accuracy rate since 1948.

For more information on the broad market, visit our S&P 500 category .

Max Chen contributed to this article.

View Comments (1)