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History Tells Us Which Sectors to Invest in after an Election

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History Tells Us Which Sectors to Invest in after an Election PART 1 OF 4

What Sectors Perform the Best after an Election?

Post-election S&P 500 in the last 30 years

In this series, we’ll analyze the post-election performance of the S&P 500 over the past 30 years. We’ll look at the performance of the index under both Democratic and Republican presidents and track the performances of the sectors.

In the last 30 years, the S&P 500 has generated an average return of -2.0% three months after a US presidential election. It has generated an average return of -1.1% six months after an election. One year after an election, it has had an average return of 1.8%.

Republicans have generated better S&P 500 returns than Democrats both three and six months after a presidential election. But Democrats have had better returns one year after an election.

What Sectors Perform the Best after an Election?

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We’ve computed the S&P 500 returns excluding the Great Recession period of 2008–2009 to get a better sense of the returns during a Democratic presidency. In the graph below, you can see how the S&P 500 returns during a Democratic presidency have outdone the Republican counterparts by a huge margin.

What Sectors Perform the Best after an Election?

Three months after an election, every sector under a Democratic presidency recorded negative returns except utilities (XLU). Financials was the worst performing sector, and the telecommunication sector recorded the lowest decline rate.

Under Democrats, IT (information technology) (XLK) (SMH) recorded the highest returns six months after an election, followed by telecommunications and consumer discretionary. The rest recorded negative returns, except energy, materials, and utilities. Consumer staples was the worst performer followed by healthcare.

What Sectors Perform the Best after an Election?

A year after the election of a Democrat, IT recorded the highest return, followed by consumer discretionary (XLY). Energy, materials, telecommunications, and industrials were next. Healthcare and consumer staples yielded negative returns.

What Sectors Perform the Best after an Election?

Excluding the recessionary period of 2008–2009, we can see that all sectors performed positively three months after an election, except healthcare and consumer staples. Financials led, followed by consumer discretionary and telecommunications.

Six months after an election, conditions for consumer staples and healthcare deteriorated, while the rest kept performing. Financials led, followed by telecommunications.

One year after an election, healthcare and consumer staples continued their negative returns. The rest of the sectors kept performing, led by telecommunications. Consumer discretionary and IT were the next best performers.

In the next part of this series, we’ll take a look at the incumbency factor effect.

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