Stocks slammed post-election

Gregg Maloney of Barclays works on the floor of the New York Stock Exchange on Nov. 7, 2012, in New York. / AP Photo/Henny Ray Abrams

(MoneyWatch) The U.S. and international stocks markets are giving up roughly twice the gains they clocked in on Election Day. [Update: The Wilshire 5000 was down 2.3 percent at the close of trading.] Was the selloff due to President Barack Obama's victory as the media headlines claim? Or are investors reacting to developments overseas? European Central Bank President Mario Draghi warned that Germany, the continent's largest economy, is no longer insulated from the eurozone troubles; stock futures tumbled after that comment.

I looked at how the U.S. stock market has performed on Election Day and the day after for some clues.

Since 1984, the U.S. stock market has averaged a 0.49 percent gain on Election Day and a 0.84 percent loss the day after, using the Wilshire 5000, the broadest measure of U.S. stocks. The biggest day-after loss of 5.12 percent came in 2008 when Obama won his first term. The largest day after gain came in 1996 when Clinton was elected for his second term. Excluding today, stocks declined 1.40 percent after a Democratic win and 0.60 percent after a Republican win. Historically, stocks have performed better during a Democratic presidency though this tells us a whole lot of nothing for the next four years.

What this tells us is very important -- past performance is not indicative of the future. I think Nate Silver would approve of me noting there is no statistical evidence whatsoever to have predicted an up market today. And the fact that stocks have historically performed better under Democrats than Republicans is a lousy reason to increase one's allocation to stocks.

Hopefully, our politicians can work together to solve the fiscal cliff. There are two things I never predict, however -- the stock market and politics.

Author's note: I initially used the incorrect number for stock returns on day after the 2008 election and appreciate the good folks at Wilshire Associates for pointing that out.

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Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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jimisrael1 says:

wall street is just a gambling boat for the rich. if you loss a bunch of money i could care less. i expect you folks are upset though, cause the rules are not going to change and allow you to steal everybodies money when they don't want to play your game


BigMykul replies:: linkicon reporticon emailicon; Where will the taxes for Oblamo's entitlements come from when the rich leave? From main street. Just wait, that cliff is closer and will be a great fall.


JerryNA100 replies:: linkicon reporticon emailicon; To "bigmykul",
This is a place for grownups. When you learn how to write (the President of the United States is not referred to as "Oblamo") and how to think (the rich will not depart the country en masse over a modest 3% tax increase) then you can ask again for your parent's permission to use their computer.

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Carl_va says:

Interesting approach to interpreting the deltas between election day and after election. The way I read the chart you published is zero delta until the 2000 election, where a decline of 1.85% occurred. The following year saw an increase of 1.15% - noteworthy to mention that it was the incumbent president winning the election. However, in 2008 we only saw an increase of 0.16% when Obama won the election. So what happened this year with the incumbent president winning? Funny how statistics can be presented to validate just about any claim, isn't it? An alternate take-away might be that when Republicans held an incumbent president in office, the market flourished, while the market fell when Democrats held an incumbent president in office. Again, just another perspective. I shy away from party affiliation, but I take issue when reporters see fit to skew the facts in order to promote one party over another.


Allan_Roth replies:: linkicon reporticon emailicon; Carl_va,

Read the piece before you take issue. The point of the piece is that market movements the day after elections can be caused by about anything and one shouldn't assume it's because Wall Street doesn't like Obama or Democrats.

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Carl_va says:: Interesting approach to interpreting the deltas between election day and after election. The way I read the chart you published is zero delta until the 2000 election, where a decline of 1.85% occurred. The following year saw an increase of 1.15% - noteworthy to mention that it was the incumbent president winning the election. However, in 2008 we only saw an increase of 0.16% when Obama won the election. So what happened this year with the incumbent president winning? Funny how statistics can be presented to validate just about any claim, isn't it? An alternate take-away might be that when Republicans held an incumbent president in office, the market flourished, while the market fell when Democrats held an incumbent president in office. Again, just another perspective. I shy away from party affiliation, but I take issue when reporters see fit to skew the facts in order to promote one party over another.; reply

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Carl_va says:: Interesting approach to interpreting the deltas between election day and after election. The way I read the chart you published is zero delta until the 2000 election, where a decline of 1.85% occurred. The following year saw an increase of 1.15% - noteworthy to mention that it was the incumbent president winning the election. However, in 2008 we only saw an increase of 0.16% when Obama won the election. So what happened this year with the incumbent president winning? Funny how statistics can be presented to validate just about any claim, isn't it? An alternate take-away might be that when Republicans held an incumbent president in office, the market flourished, while the market fell when Democrats held an incumbent president in office. Again, just another perspective. I shy away from party affiliation, but I take issue when reporters see fit to skew the facts in order to promote one party over another.; reply

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livelystone says:: Don't worry, it's Bush's fault, or is it Europes fault, or hurricane Sandys fault, etc., etc. Couldn't have anything to do with this Presidents lack of leadership or vision, no way, because he's never wrong - LOL Bwaaahaaaa; reply

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MikeKH7 says:

Boy the media didn't win their lesson after the election. Just report the news and stop trying to spin a narrative. Especially when it comes to Wall Street...
As far as the reelection causing a down day... really???? So you think Wall Street bought the media BS about Romney winning when there was empirical data showing that was absolutely not the case? Please! The investment community has known for weeks that Obama would win... more likely than not it's just profit taking and in a few weeks if not days, the market will continue to rise... Next narrative though will be the so called "financial cliff"... if it indeed happens this year, big deal... Congress will change it after the new congress is sworn into office... so please news media, again, go back to reporting facts and investigative reporting... stop with the rumour mongering narrative spinning....


Allan_Roth replies:: linkicon reporticon emailicon; MIKEKH7,

Did you actually read the article? I was noting the decline to day could be due to a number of reasons and not the election results.

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Galactus909 says:

I weep for our future. We can all look forward to a rough time ahead.


Allan_Roth replies:: linkicon reporticon emailicon; Galactus909,

The future is much harder to predict than we think. I just hope the stock market is more like the past four years than the previous eight.

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livelystone says:

Don't worry, it's Bush's fault, or is it Europes fault, or hurricane Sandys fault, etc., etc. Couldn't have anything to do with this Presidents lack of leadership or vision, no way, because he's never wrong - LOL Bwaaahaaaa


Allan_Roth replies:: linkicon reporticon emailicon; LIVELYSTONE,

So what do you attribute the four year bull stock market to? What do you attribute the awful stock market in the previous eight year period to?

Finding cause and effect isn't as simple as we think.


maloot replies:: linkicon reporticon emailicon; Mr Roth,

I see no blame for Obama about Obamacare, two stimuli that went to bundlers and the Unions, his massive debt increases, bailouts that went to the Unions, etc. etc. Any dolt, like the MSM sees it's captive audience, sees that as liberal spin at best and 2% ethnic MSM spin against the shrinking majority brought about by that same anti-American group at the very honest worst.