Investors worried about the tight race for the White House should relax.
History shows that during presidential election years, November and December tend to be bullish months for stocks.
Stocksin the Standard & Poor's 500 index have risen 0.9%, on average, inNovember during election years dating back to 1928, according to datacompiled for USA TODAY by Bespoke Investment Group. December hasdelivered even bigger gift-wrapped gains, with an average rise of 1.7%,ranking it No. 1 of all 12 months in years voters go to the polls tovote for president.
Paul Hickey, co-founder of Bespoke, predicts stocks will close out this year on a positive note.
"Wewould expect ... the market to rally following Election Day as some ofthe uncertainty from the market is lifted and the poor third-quarterearnings are digested," he says. Corporate earnings, of course, havebeen so-so, with only 62% of companies in the S&P 500 that havereported topping forecasts, in line with historical trends, ThomsonReuters data show. But only 39% of companies have beat expectations onrevenue and sales, which suggest demand for goods and services in theeconomy remains tepid.
Wall Street hopes that once the nextpresident is known, whether it be a second term for President Obama or afirst term for Republican challenger Mitt Romney, many unansweredpolicy questions related to taxes, Wall Street regulation and healthcare will have more clear-cut answers.
Investors also say theywill most likely have a better idea after the election if a grandbargain will be hatched between Democrats and Republicans in Congress toresolve the so-called "fiscal cliff." The cliff is a potentialgrowth-stunting mix of tax hikes and government spending cuts that couldoccur Jan. 1 unless Congress acts to avert it.
"The U.S.presidential election should dominate the headlines" this week, LewisAlexander, U.S. chief economist at Nomura, said in a client note titled,Hail to the chief.
The stock market's ups and downs thisyear have closely tracked the peaks and valleys normally associated withthe fourth and final year of the so-called "presidential stock marketcycle," Hickey says. There's typically an early-year rally, a springsetback, a summer rebound and another pullback in the fall, whichnormally sets the stage for a post-election rally.
Comparing stockcharts from 2012 with historical patterns since 1928, the presidenialmarket pattern appears intact. The stock market rallied sharply from thestart of the year through the spring. It then suffered a pullback ofnearly 10% in late spring before rallying into October to freshfive-year highs, before cooling heading into the vote on Nov. 6.
Friday, the Dow fell 139 points, or 1.1%, to 13,093.16.
Courtesyof Bespoke, here are a few more November market tidbits of the past 100years to consider as we go to the polls Tuesday:
• When aDemocrat has won the election, the Dow has fallen 0.7%, on average inNovember, compared with a gain of 2.5% when a Republican took the WhiteHouse.
• When the incumbent candidate has won re-election, the Dowhas gained 1.3%. But when a Democrat incumbent won, the gain dwindledto 0.2%. When a challenger to a sitting president has won, the Dow hasdeclined 0.1%.
• There has only been one time in the past 100years when a Republican challenger has defeated a Democrat incumbent.That was in 1980, when Ronald Reagan beat Jimmy Carter. That year theDow soared 7.5% in November.