How to trade the US election

From a statistical standpoint

Today, we’re diving into the market impact of elections. Don’t worry—no political opinions here. Instead, I’m breaking down the historical statistics, trends, and market seasonality that can help guide your trading decisions during this period.

Key Market Takeaways:

• General Market Behavior: The S&P 500 typically trends upward over time, regardless of political leadership, with significant downturns usually linked to major global events, not politics.

• Staying Invested Wins: From 1950 to now, investing $10,000 only during Republican or Democrat presidencies would net significantly less compared to staying invested the whole time. The data shows a return of $77,000 (Republican) and $44,000 (Democrat) versus $3.5 million for staying continuously invested.

• Congress Composition: Whether the house leans Democrat or Republican, the overall impact on market returns is not dramatic enough to warrant major shifts in strategy. A divided Congress has historically led to steady returns, emphasizing that gridlock can actually reduce market disruption.

• Volatility Trends: The VIX shows increased volatility leading up to elections, tapering off post-election and stabilizing around Inauguration Day. This suggests that the market is less anxious once political uncertainty clears.

• Sector Performance: It’s crucial to avoid assumptions. For example, tech thrived under Trump, while commodities did well under Biden. Sectors that outperform are not always aligned with campaign narratives or public perception.

• Seasonality in Election Years: September and October are choppy, but markets generally drift upward after election outcomes are determined, aligning with typical year-end seasonality.

For traders, the focus should remain on data and technicals. If you’re ready to trade with the insights from backtested algorithms and eliminate the noise of political speculation, check out StatsEdge Pro at StatsEdgeTrading.com.