U.S. political race is watched by many around the world. Most anticipating the result of the current year's (2020) official race, because for investors and market speculators they want to know how will the markets respond if Trump is reappointed? All things considered, he represents liberation and tax reductions. Biden win means the expectation will go the opposite way.
Rarely a shift in party governance meant a catastrophic results for the stocks market. The fact is long term investment decisions will not be affected by an elected official who will be around for eight years at the most.
Trading, on the other hand will be affected as it is very short term. Below I did a study of what happen to the S&P500 index before and after the election for the past 70 years. We can clearly see a pattern, that regardless of who is elected the week before election the index has a tendency to go up as you can see from the stats below:
The chart above shows the S&P500 index % return over the past 17 election years.
The table above shows the profits in percentage and in points, also the maximum rise and drop during the period.
The stats clearly shows an edge on the long side before the election with 10 to 2 trading days before election all showing an upside bias.
On the other side, the 2 to 8 trading days after the elections have a downward bias. The chart below shows the returns in % over the past 17 elections.
There is a clear edge on the downside for the first days after the election.
While there are edges both before and after the election, you can clearly see that the return is much higher going long before the election with %76 win percent and a median return of %2.3 per trade while going short after the election have a %65 win percent and a median return of %0.08.
While the downside is not profitable enough to be traded on its own, you can use it as a filter not to go long within the 7 days after election.
I used Seasonax to do this study, it took me 5 minutes to find out the patterns, because there is no setup or software to take care of. I love this tool and am using it more and more in my trading. I have a Seasonax review you can check out here.
Dow Jones Industrial Average performance is very closely correlated to the S&P500 as you can see from the stats below:
The down pressure after the election is not as good, but it is also not upward biased. There are thousands of instruments on Seasonax that you can find seasonal patterns on it, like stocks, currencies, futures, indexes, and not only in US but globally.
Seasonax is a free tool with 20 instruments and full historical data to do your seasonality testing on it, however if you decide to go for any paid plan then I am glad to let you know that the team behind Seasonax graciously agreed to give 20% discount to my readers and my YouTube channel viewers.