I don’t believe there are historical patterns to stock market moves after election results that are coherent enough to use them for our portfolios.
The S&P 500 grew 56% on average after Blue Sweeps (Democrats control Presidency and Congress) as opposed to 35% after Red Sweeps (Republicans control Presidency and Congress). But the S&P 500 grew an average of 60% after divided governments were elected. The traditional wisdom is that markets like when the government is gridlocked and can’t get much done because it reduces government meddling in businesses and their growth.
But the world is not so simple as headline narratives. I would argue that the stock market is most affected by U.S. Federal Reserve policies, tax rates, labor market dynamics, and consumer spending mega-trends.
Therefore, regardless of the outcome, the next four years will be a very uncertain time and will be a “stock picker’s market.” We’ll either be faced with sweeping policy changes around taxes and regulation or continued gridlock and uncertainty. For investors like us, that want to maximize our returns over the long run, it doesn’t look like an environment to “buy the S&P 500 and forget about it.” We’ll have to keep our “head on a swivel” and allocate our portfolios according to the upcoming changes or uncertainty.