The correlation between election day and the stock market is quite intriguing. On Tuesday morning, as voters in Ohio, Kentucky, Virginia, and Mississippi headed to the polls to decide on local races and contentious issues like abortion rights, the S&P 500 saw a 0.4% increase in morning trading. This aligns perfectly with the historical pattern that has been observed.
Over the past nine years, the Dow Jones Industrial Average has closed higher on election day, while the S&P 500 has closed higher for three consecutive times. Looking at data from 1970 to 2022, the S&P 500 moved an average of 0.32% on election days, which usually fall in the first week of November. Interestingly, the index showed an upward trend 60% of the time.
While a 0.32% movement may not seem significant, it’s worth noting that the average daily change for all trading days during this period was only 0.03%. This means that stocks are ten times more volatile on election days compared to nonelection days.
However, it is important to recognize that much of this volatility can be attributed to economic conditions rather than simply the act of voting. Take November 4, 2008, for example, when the S&P 500 saw a significant jump of 4%. Although it was the largest swing on an election day since the 1970s, it was a relatively ordinary occurrence given the economic and market crisis at that time. In fact, during the last three months of that year, the index experienced 17 days with gains over 2% and 22 days with losses over 2%.
The most tumultuous election day for stocks can be traced back to 1987 when the index plummeted by 1.9%. This decline occurred only two weeks after a remarkable downturn that many consider the first contemporary global financial crisis. During the span of October 13 to Black Monday on October 19, stocks plummeted by nearly 30%. The market didn’t stabilize until early December as investors grappled with concerns surrounding globalization, the U.S. trade deficit, and the weakness of the dollar.
Ultimately, for stocks on election day, normal is considered good.