The S&P 500, Nasdaq 100 and Dow Jones Industrial Average are all trading roughly 5% higher since the elections as the stock market casts its approval of the incoming administration.
Bitcoin and other more speculative positions are trading as much as 40% higher since the elections as investors have jumped into more speculative areas of the market.’
Also gaining considerable ground are the banking sectors. nuclear energy companies and some select defense and law enforcement stocks that are likely to benefit from the Trump 2.0 policies.
We’re now starting to hear investors wonder if the market can continue its strong move through the end of the year.
Historical seasonality data for the S&P 500 shows that stocks tend to perform strongly after any presidential election.
Since 2000, stocks have posted gains in the last 8-9 weeks following a presidential election that outperform normal performance by more than 100%.
On any given year, stocks rally about 2.5% in the weeks following the first week of November.
During the presidential election years that number increases to 5.3%.
And Stocks Look Like They’re Setting Up for Another Move
One constant in the seasonality is that stocks are traditionally “soft” during the Thanksgiving holiday week. This is due to lighter trading volume and fewer headlines to drive buying or selling in the market.
Historically, presidential election years see stocks rally more than 4.2% on average in the week following Thanksgiving.
There are several reasons for this.
Congress hits the homestretch for their session before the end of the year. This means that we can expect to see legislative headlines that will move stocks.
Investors are looking to get that last push into the end of the year as the get sideline money to work in the “hot” sectors.
Finally, institutions and money managers put their best faces on their portfolio holdings before the year-end statements in a long-held tradition of “window dressing”.
Window dressing a stock portfolio involves fund managers buying high-performing stocks that they haven’t owned near the end of a reporting period. This improves portfolio appearance to attract investors, even though it may not reflect the fund's typical holdings.
While trading volume gets extremely light in the last week of trading between Christmas and New Years, stocks generally finish the year on a strong note.
Presidential election years see an average boots to stocks of 1.4% in the last trading week of the year.
But that leads to the “soft patch” that the market is going to run in to in January.
Ask ten investors how January is for stocks and nine will tell you that the market takes off in the first month of the year.
False.
Historically, January kicks the year off with weaker than average returns, across the board.
Volatility and profit-taking are the name of the Game for the first eight weeks of the New Year following a presidential election.
On average, five of the eight first weeks generate negative returns with the winning weeks providing only marginal gains.
The rationale behind the underperformance includes first Quarter earnings season kickoff.
The large banks will kick off earnings season during the second week of January. This year, expect investors to be nervous about the Fed’s outlook for interest rates as the economy may hit another inflation bump in 2025.
Investors would be wise to allow their gains to continue to run into the end of the year.
Always speak to your advisor about the opportunity to harvest losses in your portfolios as the year approaches. Do so with a plan on where those funds can be reallocated either this year or next.
Keep a focus on large cap technology stocks as their performance has started to flag.
Names like Microsoft (MSFT), Alphabet (GOOGL) and Meta (META) Have spent much of the second half of 2024 languishing in wide trading ranges. Their lack of a trend reflects investor’s fear that the AI trade may have run its course, at least for now.
Maintain a focus on the “Pro Trump” stocks as we move into 2025.
Names like GEO Group (GEO), NuScale (SMR) and Consol Energy (CEIX) are among the names likely to benefit from Trump’s legislative docket.
