Find out how markets typically react after an election
How does the market typically react after an election? Vanguard Investment Strategist Jonathan Lemco looked at the historical data dating back to 1853 to get the answer.
TRANSCRIPTJon Cleborne: So Jonathan, you’ve done some work on that too, looking at volatility around elections. I wonder if you might comment on that?
Jonathan Lemco: Sure. Published a piece that’s on vanguard.com as a matter of fact. Looking at elections, U.S. presidential elections, dating back to 1853, and found that in aggregate, in subsequent election years, whether it’s a Democratic victory, whether it’s a Republican victory, the equity returns are virtually identical. Now to be fair, you get periods of time in the ’20s when, for example, the Republicans were ahead. You get a period of time from the 1960s through ’80 when the Democrats tended to be ahead. But if you look at the aggregate, you find that, maybe surprisingly, the difference is almost nothing. And so I’m not a soothsayer here, I’m not forecasting that that’s what it might be going forward, but history does teach us to take the long view, to take a broad perspective here, and this is an important lesson that we learned in all this. We also looked at volatility prior to elections since 1991, and as measured by the VICS to the present, and found that in the days up to an election volatility spikes up. But in the 100 days after, it stabilizes substantially and then in the days following up to 200 days, it plummets to almost nothing. So here again, this is consistent since, in this case 1991 when we started using the VICS. So bear in mind that we want to take a longer-term perspective on all of this.
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