(News Bulletin 247) – According to a recent study by Oddo BHF, if Wall Street tends to be wait-and-see before the election, the S&P 500 gains on average 5% over the three months following the election.

The world’s largest economy is preparing to choose the new tenant of the White House. The US elections will officially take place next Tuesday. According to data aggregated by the New York Times, the battle for the presidential election promises to be close between Democrat Kamala Harris and Republican and former President Donald Trump. Whether across the entire vote or in key states, the “swing states”.

It is difficult to predict at this time how the market will react. On the one hand, because it is not certain that a winner will be declared the day after the election (it took more than a month in 2000 to decide between the Democrat Al Gore and the Republican George W Bush). And secondly, because beyond the winner of the presidential election, investors will monitor the composition of the two chambers of the American Congress. On November 5, Americans will also have to vote on all of the approximately 435 members of the House of Representatives and on approximately a third (34 seats out of 100) of the Senate.

“The extreme polarization of the American electorate makes the presidential race very tight. The distribution of Congress is also very important, because many pieces of legislation require bipartisan agreement to be adopted,” summarizes Ombretta Signori, director of macroeconomic research for OFI AM.

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Many unknowns

In a recent note, the economist estimated “that a victory for Donald Trump would theoretically be more favorable to stocks, in particular because of the tax cuts. Conversely, a victory for Kamala Harris would a priori be less inflationary and therefore less penalizing for the bonds. “That said, a longer-term full-throttle Donald Trump scenario could prove less favorable for stocks and more for bonds due to curbs on growth, protectionism and less immigration,” she added.

Oddo BHF judges for its part that a victory for Donald Trump could theoretically be more favorable to the stock markets due in particular to the impact of the tax measures desired by the former tenant of the White House, who intends to reduce taxes on companies. A victory for Kamala Harris would be “neutral for the American equity markets, the negative forces (increase in taxation, regulation) balancing with the positive forces (subsidies to support activity)”, considers the broker.

If the number of unknowns therefore remains very significant, it may be useful to invoke history to project the behavior of the market. Even if, let us remember once again, past performances do not predict the future.

Towards a post-election rally?

In a detailed study written at the beginning of the month, Oddo BHF studied the evolution of the S&P 500, the largest American index, before and after an American presidential election, since 1972. The broker, however, excluded the election from the field of 2008, a year when the market was weighed down by the great financial crisis of 2008-2009.

The broker’s strategists have thus noticed that over the last thirteen elections, the market has shown a certain wait-and-see attitude before the vote. Thus the S&P 500 only progressed by 2% on average during the three months preceding the American presidential election.

On the other hand, once the political uncertainty has passed, a small post-election rally is subsequently observed. The S&P 500 thus increases on average by 5% in the three months following the election and by 8% as of June 30 in the year following the election year.

“The market having already progressed significantly this year (20.6% for the S&P 500 to date

Editor’s note), does it still have potential? We think so, as the Fed’s rate cuts (American Federal Reserve, Editor’s note) are capable of supporting the stock markets,” judges Oddo BHF.

“The result of the election will allow investors to position themselves between two sometimes diametrically opposed economic visions. Of course, factors of concern will remain (unpredictability of Donald Trump, leap into the unknown for Kamala Harris), but a divided Congress would lead to these risks being moderated,” concludes the broker.

An importance to put into perspective

In the same vein, a study by the American group Fidelity notes that the S&P 500 tends to increase by 8.3% on average during the twelve months following the election, more precisely from November 30 following the election to November 30 of the election. year after. The asset management group based itself on data dating back to 1950.

However, Fidelity somewhat qualifies the impact of the American elections. Historically, financial markets have not been really disrupted by presidential and midterm elections, the group notes. “If you’re an investor, my advice is not to focus on this question,” said Denise Chisholm, Fidelity’s director of quantitative strategy.

“While political headlines can sometimes cause short-term market turmoil, over the long term, for stocks, bonds and other investments, returns appear to be driven more by the fundamentals of the underlying asset classes ” than by elections, agrees Naveen Malwal, of Strategic Advisers.