Can You Predict Post-election Winners?
After an election, many investors try to predict which sectors will thrive under the new administration’s policies. But history suggests that election-driven market bets rarely translate into long-term outperformance.
A common investor focus after elections is speculating on what types of businesses stand to beneft from the new administration’s political agenda. While there’s always uncertainty over how much of this agenda will be implemented, investors may feel they have a sense for which sectors will be impacted. But those expectations may not help predict which stocks will outperform. Markets quickly incorporate new expectations following election outcomes. Once the ballots are counted, stock prices refect, in real time, investor expectations about things such as regulatory or tax policy changes. When these new expectations are baked into prices, we should not expect an election effect to persist. This is supported by tracking top- and bottom-performing sectors post-election. For example, the election month winners outperformed the US market by over six percentage points on average during the election month but performed in line with the market during the newly elected president’s full term. Election month losers showed similar lack of persistence. The beneficiaries of the new administration may seem predictable, but be careful about letting that factor into your asset allocation decisions.
Exhibit 1
Presidential Election Month Winners and Losers
Equity sector winners and losers, average monthly returns vs. the market, 1928-2024
Past performance is not a guarantee of future results.
Actual returns may be lower. Data shown is from November 30, 1928, to November 30, 2024. Equity sector winners are the top-performing equity sector in an election month. Equity sector losers are the worst-performing equity sector in an election month. Presidential terms start with the frst month in ofce and end with the last full month in ofce. Limited to presidential terms in which the president assumed ofce after a general election. US market returns are the Fama/French Total US Market Research Index. The US sectors are represented by the 10 Fama/French industry portfolios. Data provided by Fama/French. The Fama/French indices represent academic concepts that may be used in portfolio construction and are not available for direct investment or for use as a benchmark. Index returns are not representative of actual portfolios and do not refect costs and fees associated with an actual investment. See “Index Descriptions” for descriptions of the Fama/French index data.