[originally published on Nov. 7, 2012]
To repeat my observations in today's market close update:
Today the S&P followed the time-honored pattern of post-election selloff. Of the 16 presidential elections since the middle of the last century, the close before the election has been a gain 13 times. The day after the election has posted a gain only six times. Today's 2.37% post-election selloff was the second worst in 60 years, the worst being the -5.27% gut-wrencher the day after Obama's first victory.
Earlier today: As I type this, about 90 minutes after the US equity markets opened, the major indexes are selling off. The S&P 500 is down over two percent. In my S&P 500 daily update for yesterday, I pointed out that Election Day or the day before prior to 1984 (when it was a market holiday) has usually recorded gains, at least as far back as the middle of the last century.
But what about the day after elections? The pattern of "second thoughts" appears to be the norm. Here is a table showing the 16 Election days starting with Dwight Eisenhower's 1952 win over Adlai Stevenson. It's the same table I posted yesterday, but this version adds the S&P performance for the day following the election.
Obama's first win has the record over this timeframe for the best pre-election market performance. Unfortunately, the selloff on the following day also set a record. Of course November of 2008 was a grim time for the markets, just a few weeks after the Lehman Brothers bankruptcy. In fact, the S&P 500 fell another 5.03% on the Thursday after the 2008 election.
Fortunately, the Financial Crisis is behind us, although there's still some clean-up work to be done. But the back-page news item that's repeatedly showing up as a headline today is on the Fiscal Cliff. The market will be especially interesting to watch while a lame-duck split Congress begins to focus on the grim politics of the US budget and the expiration of the Bush tax cuts.
Now let's take a longer look back at the Dow Jones Industrial Index, which was launched in the spring of 1896, the year William McKinley was elected to his first term as president.
There have been 30 presidential elections during the history of the Dow. The Republican party candidate has been elected 16 times, the Democratic party candidate 14 times. The Dow close prior to the vote count has been positive 73 percent of the time (22 of 30). Positive day-after closes fall to 47 percent (14 of 30).
If we limit the look back to 100 years, excluding the astonishing post-election-day market exuberance from McKinley's first term through Wilson's first term (which averaged a whopping 2.68%), the number of day-after gains drops to 30 percent.
We can express the extreme manic-depressive behavior of the Dow at President Obama's first-term victory by subtracting the day-after closing percent from the day-before closing percent. It was a stunning 8.33 percent. Only one former president did worse: By this metric FDR's first term registered 9.46 percent. In distant third place was Harry Truman at 4.63 percent.
Of course the November 2008 face-off between Obama and McCain was a grim time for the markets, taking place just seven weeks after the Lehman Brothers bankruptcy. In fact, the S&P 500 fell another 5.03% on the Thursday after the 2008 election.
Fortunately, the Financial Crisis is behind us, but unfortunately we're fast approaching the Fiscal Cliff.
To paraphrase my observation at the conclusion the S&P 500 commentary: The market will be especially focused on how the lame-duck split Congress addresses the grim politics of the federal budget and the expiration of the Bush tax cuts.
Interestingly enough, the first move appears to be Republican House Speaker John Boehner's gesture of willingness to compromise on revising the tax code (more here). The devil, of course, will be in the details.