Election Blues: Looking at Election History for Market Guidance

Key Points

  • As has often been the case, an “October surprise” came with a jolt early Friday with the announcement of President Trump’s positive COVID-19 test result.
  • Political pundits have been out in full force; with some consensus on the consequences of the diagnoses with regard to the election and fiscal stimulus.
  • A look at history is essential to understand that the relationship between politics and the stock market is varied and without consistent messages.
  • For investors wondering what to do now: we would caution against trying to make short-term bets on the lead-in to the election, especially with regard to its possible outcome. History supports the view that betting on election outcomes is a risky strategy.

It was always my intention to write about the upcoming election, what history says about its impact on the stock market (or vice versa), and dos and don’ts for investors. What I didn’t expect was waking up at 2am on Friday morning (which is normal for me—I’m a chronic middle-of-the-night insomniac) to the news of President Trump and the First Lady contracting COVID-19.

The term “October surprise” dates back to Ronald Reagan’s 1980 campaign associated with the Iranian hostage crisis; but there has been a long history of notable news events late in election seasons, including:

  • Gore vs. Bush contested election in 2000
  • Indictment of Reagan’s Defense Secretary Weinberger associated with Iran-Contra in 1992
  • Nixon’s Secretary of State Kissinger declaring he believed “peace is at hand” re: Vietnam War in 1972
  • Lyndon Johnson halting U.S. bombing of North Vietnam in 1968
  • Israel’s invasion of Egypt in 1956
  • Assassination attempt on Teddy Roosevelt in 1912
  • Hamilton’s denunciation of Adams in 1800