Investors should brace for election-related volatility in the stock market as we approach November 5, according to analysts.
While recent economic data suggests the Federal Reserve may start cutting interest rates, providing some relief to U.S. financial markets, the 2024 presidential election season brings a new layer of uncertainty.
Historical trends show that the S&P 500 often experiences choppy and lackluster performance during election years, with September being particularly weak. Since 1944, the S&P 500 has averaged a 0.8% decline in September during election years, according to CFRA Research.
Sam Stovall, CFRA’s chief investment strategist, notes that August and September have historically been two of the worst months in election years, with September showing the steepest declines.
October, while typically posting a 1% gain, has been the most volatile month in election years, with a standard deviation 35% higher than the other months, reflecting increased market uncertainty.
Election outcomes also play a crucial role in market behavior. Historically, when the incumbent party loses the White House, volatility spikes as markets anticipate policy changes.
This year, the switch from President Joe Biden to Vice President Kamala Harris as the Democratic nominee has injected additional volatility, particularly with Harris leading in polls against Republican nominee Donald Trump.
Sector-specific impacts are also in focus, with the healthcare industry showing a preference for Trump’s policies. Despite recent strong performance, analysts warn that healthcare stocks may face headwinds if Harris wins, particularly regarding drug pricing reforms.
This sector rotation could contribute to further market volatility as Election Day approaches, potentially driving the Cboe Volatility Index (VIX) higher.
Investors should remain cautious, as the evolving political landscape could significantly impact market dynamics in the coming months.
