Based on the historical performance of the S&P 500 during previous election years, the U.S. stock market may go through a period of doldrums and volatility from now until November 5th.
U.S. stocks closed lower on Tuesday, with investors awaiting Federal Reserve Chairman Powell’s speech at the annual Kansas City Fed symposium in Jackson Hole, Wyoming, on Friday, which is expected to set the tone for the possible extent of interest rate cuts.
After the economic recession scare earlier this month, the U.S. financial market seems to be signaling an all-clear, with economic data seemingly paving the way for the Federal Reserve to initiate interest rate cuts.
However, market analysts warn that as the 2024 presidential election season unfolds in full, the stock market outlook remains bleak. According to the performance of the S&P 500 in previous election years, the U.S. stock market may experience a period of doldrums and volatility from now until November 5th.
Historically, September has been the worst-performing month for the stock market in presidential election years. Data from CFRA Research shows that the S&P 500 has averaged a decline of 0.8% in September during election years, marking the worst performance in September since the election year of 1944.
“In terms of price returns, August and September have traditionally occupied two of the three worst-performing months in election years,” said Sam Stovall, Chief Investment Strategist at CFRA Research. “Since World War II, the months of February, August, and September in election years have all seen average declines, with September being the worst, not only in terms of the largest average decline but also in terms of the frequency of declines exceeding the frequency of gains.”
Although the average monthly gain in October during election years exceeds 1%, October has been the month with the highest volatility and the highest standard deviation of monthly returns since 1944. Standard deviation measures the dispersion of stock prices relative to the average. When stock prices fluctuate frequently, the standard deviation will be high, thus indicating greater market volatility.