The race between Vice President Kamala Harris and former President Donald Trump will come down to the wire. Regardless of who wins, a lame-duck session will follow. The lame-duck session occurs right after an election, until the winning candidate is sworn in. It applies to Congress and the president, and it can be an interesting time. After so much anticipation, there are now a few months when Washington is transitioning. However, Congress can still meet, and the departing incumbent president can sign laws and make executive orders. Let's look at how the broader market benchmark S&P 500 index has performed right after the U.S. presidential election.
After the election, one might think politicians relax. However, big things have happened during the lame-duck period. In 1992, after losing to Bill Clinton, former President George H.W. Bush pardoned six people who planned the Iran-Contra affair, all of whom had been indicted or convicted. Former President Barack Obama got several bills through Congress during his lame duck period in 2016-2017, including the Cures Act. Trump got 13 judicial nominees for various courts confirmed by the U.S. Senate before he left office in 2021.
To see how the S&P 500 performed, I looked at the index's performance from the day after the new president was elected until the day they were sworn in a few months later, dating back to 2000. Here are the specific dates of each lame-duck period:
Nov. 8, 2000-Jan. 20, 2001
Nov. 3, 2004-Jan. 20, 2005
Nov. 5, 2008-Jan. 20, 2009
Nov. 7, 2012-Jan. 21, 2013
Nov. 9, 2016-Jan. 20, 2017
Nov. 4, 2020-Jan. 20, 2021
As you can see, lame-duck periods for the presidency are typically 2.5 months, give or take. Here is how the S&P 500 performed in each of those periods:
Chart by author. Data source: YCharts.
The results are inconsistent. The average return during presidential lame-duck periods is only 1%. Big moves occurred in 2008-2009 after Obama became president, and after President Joe Biden won the most recent election. Obama came into office during the Great Recession, and investors seemed to fear what a Democratic administration would mean for the economy and stock market after eight years of former Republican President George W. Bush.
Stocks enjoyed nice gains after Biden was elected. The stock market had already been having a good run amid the pandemic. Many believed Biden would implement more stimulus that would fuel more stock buying and additional policies to help end the pandemic and open up the economy.
The past is certainly not a prediction of future performance. In this case, past data shows that anything can happen to the stock market during a president's lame-duck period. What happens may have more to do with what's going on in the world than with the next president. Make no mistake, the next president and Congress will affect new policies and regulations, and potentially even affect the trajectory of inflation and, therefore, interest rates.
But if you are a long-term investor, there is no need to sell or buy stocks unless you think a future policy or law from the new president will dramatically change your investing thesis. Be prepared for potential volatility, and understand that the shifting political landscape might be a contributing factor.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.