Wall Street is moving past the uncertainty of election season and, if history is a guide, investors can indeed breathe a sigh of relief.
Stocks typically post solid gains following an election, no matter which party controls the White House or Congress. On average the S&P 500 gains 8.1% in the year after the election, according to data from the research firm CFRA.
Former vice-president Joe Biden is now president-elect, although President Donald Trump has yet to concede. Meanwhile, Congress appears likely to remain split, though that depends on the outcome of two Senate run-off elections in Georgia.
The results leave financial markets looking at what apparently will be a divided government in the new year. That scenario is typically favorable to Wall Street, although the gains aren’t as fruitful as when one party controls both the White House and Congress, according to the CFRA data, which goes back to World War II.
Meanwhile, stocks typically rise in December of an election year, though in 2020 investors still have to deal with the virus pandemic and the question of how much longer it will stifle the economy.
The S&P 500 has had an average return of 8.6% overall during the years that the U.S. government was split between parties, which is just under the 8.8% average return for every year going back to 1944.
Barack Obama was the only Democratic president since 1944 to preside over a split Congress, with Biden as his vice president. The average return for those four years was a sparkling 13%, although the gains followed a damaging recession and came as the markets were in the midst of what would become a record bull market.
Trump has had a divided government the past two years. In 2019, the S&P rose about 29% and so far this year it’s up 8.2%, despite a plunge in March and April that ended the long bull market.