Ask Matt: Whatís next for stocks after the election?

Ask Matt: Whatís next for stocks after the election?

Trader Mark Puetzer, right, works on the floor of the New York Stock Exchange, Monday. Don't expect to be dazzled with big gains following the election of a new president.

A: Investors have been worn down by the election. The question now is how investors will react to the new president.

Donít expect to be dazzled with big gains following the election of a new president. Investors are not fans of uncertainty, and new leadership introduces an unknown that traditionally puts a damper on stocks. Since 1949, the S&P†500 has gained 1.9% during the fourth quarter in election years, says the Stock Traderís Almanac.

Stock returns during the fourth quarter of election years are much lower than the same period during off-election years. Eventually, the stock market regains its confidence as the election becomes history.

The S&P 500 has gained 7.6% on average in the year following the election, says Sam Stovall, chief investment strategist at market research firm CFRA, which looked at elections back to 1945. But the largest gains in presidential cycles occur well into the new terms. The S&P 500 rose 16.1% in the third year of presidential cycles, which on average is the best year of the four-year term, Stovall found.

Itís not just because of a few good years, either. Stocks rose 88% of the time in the third year of a presidentís term.



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