The bank notes that knowing the outcome of US elections in advance doesn't necessarily provide an investing edge.
Pre-Election Market Behavior:
- Historical data shows that the S&P 500 index and other markets do not follow a consistent pattern in the six months leading into an election, regardless of whether the government is divided or unified.
- Markets typically perform similarly in election years compared to non-election years, and the party of the winning candidate does not significantly affect this trajectory.
Post-Election Observations:
- While pre-election periods are generally noisy with little differentiation, post-election periods begin to show some distinctions based on expected policy changes in trade, fiscal, and tax areas.
Data and Analysis:
- While returns on stocks, bonds, the USD, and gold may look similar leading up to the election, they start to diverge after election results are announced.
Caveats:
- The effectiveness of using past election outcomes to predict future market behavior is limited due to the small sample size of elections and changing economic conditions.
- Market responses are more likely influenced by macroeconomic conditions and broader shifts in policy priorities over time.
morgan stanley market performance into elections