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Wall Street wants a presidential winner, and according to history, it usually rewards one.
November is historically the best month of the year for the S&P 500 during election years, and the rest of the year typically ends strong, according to LPL’s Ryan Detrick.
During an election year, November is the best month of the year for the S&P 500.
December is the third best month.
Will 2020 follow suit and end up strong? pic.twitter.com/c6OSBks9Ac
— Ryan Detrick, CMT (@RyanDetrick) November 2, 2020
That’s due in part to a relief rally following the election when markets get clarity about the administration for the next four years, as “investors usually put money to work after elections,” Jason Draho, the head of asset allocation Americas at UBS Global Wealth Management, wrote in a note Monday.
For this year in particular, the relief rally may be due not only to who becomes President: “One of the things about November that will be most positive is we’re going to get answers to some of the most pressing questions: Who is going to run the country for the next four years? Are we going to have vaccines, and do they work?” Jamie Cox, managing partner at Harris Financial Group, tells Fortune. “That has sort of been looming large over us for the better part of this year.”
But, to be sure, 2020 hasn’t had the best track record when it comes to trends, recently tanking on the historically best day of the year for stocks, Oct. 28. Many on the Street argue that short term, things may be rocky, and Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, suggests investors “buckle up, as this may be an election week (or longer) and not just an election night, and markets are already bracing for the uncertainty,” he wrote in a note Monday.
The big concern for investors this election has been the possibility of a contested election, which could roil markets if the White House doesn’t get a clear result shortly after Election Day. Charlie Ripley, senior investment strategist for Allianz Investment Management, argued, “It’s not so much who gets elected but more so how that takes place” that’s important for investors, he recently told Fortune.
But on Tuesday markets appear more optimistic that a clear winner, whoever it is, will be declared, as the Dow and S&P 500 both popped over 2% in midday trading. FiveThirtyEight currently gives Biden a 89% chance of winning, and LPL’s Jeff Buchbinder recently told Fortune that in recent weeks “markets have been saying, ‘Biden’s the favorite.’”
According to Edward Jones’s Angelo Kourkafas, “Today’s gains, coupled with Monday’s rise, seem to be reflecting a slightly higher probability that we may avoid a contested election result,” he tells Fortune via email. (Harris Financial’s Cox argues it’s also because of oversold conditions last week that are resolving.) But Kourkafas still doesn’t think an “immediate, clear winner is a foregone conclusion at this point, and we maintain our view that a contested result would likely produce the greatest amount of short-term market volatility.”
Part of the current market optimism may be clinging to the hope of another stimulus package, something the economy and investors have been waiting for (and trading on) for months. Though the timing and size of a new deal is up to whoever secures the White House, many analysts and economists expect another round of help soon.
Ultimately, those like Edward Jones’s Kourkafas argue, “the passing of election uncertainty will enable the market to shift its sights back to the health of the economic recovery, monetary policy conditions, and corporate earnings performance.”
Meanwhile the market’s rebound on Monday and Tuesday from its big selloff last week puts it back on track for a road map some strategists like Charles Schwab’s Randy Frederick have been following all year: tracking 2020’s market to 2009’s market.
Right on cue, the $SPX has rebounded from the Oct slide in order to maintain the remarkable parallel with the 2009 roadmap. While overall performance lags, the trend is amazingly similar. If this continues, the $SPX could be +4% in another week.https://t.co/maIeV4Rfa2 pic.twitter.com/eQynRE9QgP
— Randy Frederick (@RandyAFrederick) November 3, 2020
If the market’s rise this week doesn’t run out of steam, it could put the S&P 500 on course for a 4% increase in another week, Frederick postulated on Twitter on Tuesday, but volatility is likely to remain high in the coming days, he told Fortune last week.
More must-read finance coverage from Fortune:
What Wall Street needs from the 2020 election
Trump’s odds of winning have surged in the past 48 hours, according to this data scientist’s model
How the election results could impact tech investors
Theft of $2.3M from GOP shows how campaigns are juicy targets for hackers
A journalist-turned-detective on how corporate America depends on private sleuths
This story was originally featured on Fortune.com