by Gary Alexander

November 10, 2020

Let us review: Chapter Eleven, Paragraph Two, Axiom Seven:
If one dismisses the Rest of all Possible Worlds,
One finds that This is the Best of all Possible Worlds
.

–Dr. Pangloss, in Leonard Bernstein’s 1955 musical, “Candide”

Two weeks ago, on October 26, I wrote: “This is the last weekly Marketmail before Election Day, so the best news I can give you is that … we voters (in the aggregate) usually build some checks and balances (“gridlock”) into our ballots, voting one Party into the White House and the other Party into Congress – if not in the new President’s first two years, then usually in the mid-term election.”

The good news is that we don’t have to wait until the mid-term elections. We voters reinforced those checks and balances into the system last Tuesday in the cleverest way possible in this controversial election year. Defying predictions of a “Blue Wave” and up to a 17-point victory in “swing states” like Wisconsin, many big swing states (notably Florida, Texas, Ohio and perhaps North Carolina) went to the incumbent, while Pennsylvania, Michigan, Arizona, Wisconsin, Nevada and perhaps Georgia leaned to the challenger, giving Mr. Biden a nearly 3% edge in the popular vote instead of the predicted 10%.

The Republicans are likely to retain a slim edge in the Senate, depending mostly on the Georgia runoffs in early January, and the Republicans did not lose a single contested incumbent race in the House, gaining maybe 10-15 seats, so Congress will be a more competitive battleground facing the new President. There will be no easy path toward repealing President Trump’s tax cuts or deregulation, nor any hope for a Green New Deal. As beleaguered Democrats have made plain, “socialism” is once again a dirty word.

If all states end up as they are leaning, Biden will tally 306 electoral votes, the exact total Trump scored in 2016, although Biden’s 2.9% popular vote edge is just slightly above Hillary Clinton’s 2.1% 2016 margin.

The similarities don’t end there. The stock market’s reaction is also amazingly similar – a stunning rally.

The Stock Market Soared after This Election Result – Just Like November 2016

This year, just after the worst stock market week (October 26-30, 2020) since March, we enjoyed the best market week since early April. The same thing happened in 2016, with a dismal week ending November 4, 2016, when all the polls and pundits expected an easy win for Hillary Clinton. That expectation lasted all the way until the midnight hour of Tuesday, November 8, when state after state fell under a Red Wave.

On 12:42 am on Wednesday morning, November 9, 2016, the Nobel-Prize winning economist Paul Krugman filed an article for the New York Times titled “The Economic Fallout.” It began like this:

“The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear. Still, I guess people want an answer. If the question is when markets will recover, a first-pass answer is never.”

Well, how did that prediction fare? That week, the Dow rose 5.36% and a year later the Dow was up 28.5%, the best “first year after election” ever, but that was measured from the midnight low in the Dow. Using the full week before and after the election, here’s how the markets fared in 2016 and 2020

Market Performance Before and After Election Table

Standard and Poor's 500 Turnaround After Trump's Election Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Why the massive turnaround? In one word, “relief,” but also “surprise” that the widely expected outcome did not happen. In 2016, the widely expected outcome was a Hillary Clinton victory, according to the polls. Likewise, this year the polls forecast a “Blue Wave” with a 10-point Biden victory, an expansion in the Democratic control of the House and a switch in the Senate. Going into election day, Nate Silver’s widely-followed fivethirthyeight.com (named after the 538 electoral votes) gave an 89% chance of a Biden win, a 97% chance for Democrats retaining the House (both happened, but not so decisively), and also a 75% chance of the Democrats seizing control of the Senate – which is not likely to happen.

With last week’s surprise outcome, the 7.32% gain in the S&P 500 was the best election week since FDR in 1932. There was also a calmness in last week’s market, as the CBOE Volatility index (VIX) fell 35%, its largest weekly drop since the Trump victory week in 2016, and its fourth largest weekly decline ever.

No matter who wins, history shows that the market is usually up nicely (an average 7.5%) six months after the Presidential election, including the last four presidential elections, the last two by double digits.

Stock Market Returns Before and After Presidential Elections Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Democratic winners fare better than Republicans, with an average 11% gain six months after election day, so perhaps the stars are lining up for a healthy market over the intermediate term, at least through Spring.

Happy Thanksgiving!

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Coronavirus Won the Presidential Election

Sector Spotlight by Jason Bodner
The Hidden Stories Amid Last Week’s Election News

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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