As the U.S. presidential elections approach, the equity market’s volatility tends to increase and remain stable. Historically, volatility tends to subside immediately after the election, regardless of the winning candidate. On average, markets have seen about 5% gains in the first 1 to 3 months post-election. Over a longer period of 6 to 12 months, returns are typically higher if the incumbent party wins, as this protects the status quo and supports existing trends.
This phenomenon coincides with seasonality. On average, the months of August and September tend to be more negative and volatile. This is exacerbated in election years since the U.S. presidential elections are always held in November.