With the S&P 500 down eight consecutive days for the first time since October 2008, many are wondering what this could mean for the rest of the year. Election jitters are pulling equities lower, and the big question is: could we see a big sell-off after the election?
For starters, November and December are historically two of the strongest months, and this plays out in an election year as well. Going back to 1950, the last two months of the year during an election year have averaged +2.5% and been higher 75% of the time.
End-Of-The Year Equities Tend To Be Strong
Breaking it down by the party in power shows that Republicans have returned 2.6%, whereas Democrats have returned 2.4% the last two months of the year during an election year. In other words, there is very little difference in performance depending on which party wins the election. What appears to matter more is how the economy is doing. The two largest declines below were in 2000 and 2008. In late 2000, the economy was months away from a recession, while in late 2008, it was in the midst of a recession. With the economy on firm footing now, this is another positive for the rest of 2016.
Why A Big Sell-Off Is Unlikely The Rest Of This Year
Here’s another way to look at things. The S&P 500 is currently beneath the low daily close in October (2126.15 on October 31); how often will it close the month of November beneath this level? In other words, make a “lower low.” Looking back at history, a close beneath the October low is very rare. In fact, only five times (2007, 2000, 1991, 1973, and 1950) has that ever happened. Incredibly, looking out to December, only once has the month of December closed out the month beneath the low close for the month of November—and that was in 1969. In other words, we could see some volatility, but a big drop from here is simply rather rare.