What Happens to American Markets Before and After the Presidential Elections?
Proiezionidiborsa has answered this question by developing a cycle that combines the ten-year one with the presidential one (the PdB cycle which in the last fifteen years has forecast the markets with excellent accuracy. Details are available in the ebook. The Code of Financial Markets).
In this article we will discuss what may happen between now and the end of 2021, the first year of the new or confirmed president of the United States.
Expectations for 2020 according to the historical series
When the presidential elections cross with the last year of the decade, the expectations according to the historical series for the current year, the expected trend is that shown in the following figure (red line). The blue line, on the other hand, represents the trend of 2020.
We note how the first part of the year was expected to be down, while starting from May onwards a bullish side phase was expected. Apart from the depth of the movement caused by the pandemic, we note that there was a good agreement between the forecast and the real trend.
Until the end of the year, therefore, we expect a sideways trend that could, due to the continuous false signals, cause many losses for investors. In any case, the odds tell us that the close of the year should be lower than the opening. In the case of the Dow Jones (we used this index as it has the longest time series), therefore, the close should be below 28,639. On 13 August this index closed at 27,896.72.
Historically 2020 should have an average return of -8.8% with a standard deviation of 15.3%. The probability that the annual return is positive is 28.3%.
It was already understood that 2020 was a year with a closing date lower than the opening date, when applying the Bag Projection Barometer we conclude
The January closing was negative, so this year the Barometer cannot help to understand what the 2020 trend will be. According to historical statistics, in fact, the probability that the year is also negative is 53.6% and 62.5% for the S & P500 and the Dow Jones, respectively.
Reference forecast fractal for the year 2020 for the American indices as obtained considering the PdB cycle (red line) and real price trend.
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What to expect for 2021 on American markets?
For the first part of 2021 the trend of the American markets should be bullish sideways. However, things should change in the second half of the year when a very long and deep decline is expected to begin, ending in mid-2022.
After the honeymoon with the new President, therefore, we must be very cautious and be prepared for the worst.
Reference forecast fractal for the years 2020 to 2022 for the American indices as obtained considering the PdB cycle
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How much will happen in the American markets in the next few years will depend on who is elected?
A curiosity that investors often ask is “Do stock exchanges earn more when President-in-office is Republican or Democrat?
The table below shows for each chairman from 1923 to date, the total and annualized performance with reference to the S & P500.
We note how the best and worst annual performances coincide with Republican mandates. This means that the average annual return under Democratic presidencies is slightly higher than that of Republicans.
Another aspect worth pointing out is that with Democratic presidents the likelihood of a disaster on the stock markets is virtually nil. The collapse of dot.coms at the turn of the century and the crisis of 1929, in fact, took place under republican presidencies.
| President | Party | Period | Performance Totale | Performance Annualizzata |
| Coolidge | Republican | 1923-1929 | 230,50% | 23,90% |
| Ford | Republican | 1974-1977 | 41,40% | 15,40% |
| Clinton | Democratic | 1993-2001 | 211,30% | 15,30% |
| Obama | Democratic | 2009-2017 | 175,90% | 13,50% |
| Trump | Republican | 2017-present | 40,30% | 11,50% |
| Eisenhower | Republican | 1953-1961 | 134,20% | 11,20% |
| Reagan | Republican | 1981-1989 | 129,6 | 10,90% |
| G. Bush | Republican | 1989-1993 | 47,50% | 10,20% |
| Harding | Republican | 1921-1923 | 23,40% | 9,10% |
| Roosevelt | Democratic | 1933-1945 | 153,70% | 8,00% |
| Truman | Democratic | [1945-1953 | 77,80% | 7,70% |
| Johnson | Democratic | 1963-1969 | 40,70% | 6,80% |
| Carter | Democratic | 1977-1981 | 27,00% | 6,20% |
| Kennedy | Democratic | 1961-1963 | 18,50% | 6,20% |
| G. Bush Jr. | Republican | 2001-2009 | -39,50% | -4,90% |
| Nixon | Republican | 1969-1974 | -30,00% | -5,44% |
| Hoover | Republican | 1929-1933 | -77,10% | -19,30% |
| Republicans | 6,26% | |||
| Democrats | 9,10% |
What Happens to American Markets Before and After the Presidential Elections? Conclusion
Until the end of the year, the trend will be sideways / bullish, but an annual close below the open is much more likely. For 2021, on the other hand, after a moderately bullish first half of the year, a long decline should begin that will end in 2022.
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