Gold and US presidential elections

How has the price of gold reacted to US presidential elections?

Day returns

The following chart plots the average daily returns of gold for the nine days around the US presidential elections (1968-2012). So, the chart covers the period of the 4 days before the election and the 4 days after. For example, for the 12 US presidential elections from 1968 the price of gold has increased on average 0.2% on the day of the election itself (D0).

Gold and US presidential elections [1968-2012] (1)

As can be seen…well, in fact, nothing much can be seen as there’s no clearly discernible pattern of behaviour here.

Let’s now see if there’s any significant difference in behaviour depending on whether a Democrat or Republican wins the election.

The following chart plots the average daily returns for gold for the election day and four following days. The averages are split as the  average for the five times a Democrat has won compared to the seven times a Republican has won.

For example, in the five elections that a Democrat has won the White House, the average daily return of gold the day following the election (+1D) has been 1.1%.

Gold and US presidential elections [1968-2012] (2)

Generally, the price of gold has been stronger following a Democrat win, and especially strong on the day following the election.

Let’s now zoom out time-wise and look at gold’s month returns around the elections.

Month returns

The following chart shows gold’s average month returns for the three months before, and three months after, US presidential elections.

Gold and US presidential elections [1968-2012] (3)

Historically, the gold price has been weak in the month leading up to the election (-1M) with an average month return of -1.8%. Following the election the price has tended to bounce back, with an average return in the following month of 1.1%.

The following chart plots the proportion of months seeing positive returns in these six months around the election. For example, the price of gold has only risen four times in the month before an election in the 12 elections since 1968.

Gold and US presidential elections [1968-2012] (4)

This chart largely supports the the observation in the preceding chart which is that the price of gold is weak in the month preceding an election, and strong in the following month.

Now to see if there is any difference in the behaviour depending on whether Democrat or Republican wins the White House.

Gold and US presidential elections [1968-2012] (5)

In the month following an election gold has risen on average 1.7% if a Democrat won, and 0.7% if a Republican won. The performance differential becomes more pronounced in the second and third month after the election – with gold seeing month returns of over 4% in the case of a Democrat win, and negative month returns in the case of a Republican win.

Caveat: this analysis involves a very small sample size (there have been just 12 elections since 1968) so the results can not be regarded as statistically significant. But, given that caveat, it does seem that gold loves Democrats!

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US Democrat/Republican president portfolios

Market performance by president

The chart below shows the performance of the UK market (FT All-Share index) over the periods the respective US presidents were in office.

FT All-Share return over US presidential terms

From the point of view of the UK market the best president was Jimmy Carter – the market rose 145% during his 4 years as president. The worst spell was the second term Richard Nixon when the market fell 42%.

Market performance by party of the president

The chart below plots the values of two simulated portfolios both starting with a value of 100 at the 1948 US presidential election:

  • Democrat portfolio: only invests in the UK stock market when there is a Democrat in the White House, and is in cash when the president is a Republican.
  • Republican portfolio: reverse of the above.

Democrat v Republican FTSE All Share Portfolios

The two portfolios have largely tracked each other closely until the 2008 election of Barack Obama. From this period, the Democrat portfolio performed strongly, such that by 2016 this portfolio had a value of 1344 compared with a value of 639 for the Republican portfolio.


See also: other articles on politics and markets.

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UK equities and the US presidential election cycle

The chart below shows the 4-year US presidential election cycle (PEC) superimposed on the FT All-Share index from 1956. The vertical bars indicate the timing of the November elections every four years.

FT All-Share Index and 4-year US election cycle

It can be seen that on occasions the US presidential election has (approximately) coincided with significant turning points in the UK market; notably those elections in 1960, 1968, 1972, 1976,2000, and 2008.

Returns in each year of the PEC

The following chart shows the average annual returns for the FT All-Share Index for each of the four years in the US presidential election cycle. PEC(1) is the first full year after a presidential election, PEC(4) is the election year.

FTSE All-Share and 4-yr PEC (annual returns)

Typically, presidents have primed the economy in the year before elections [PEC(3)] – or, at least, stock markets have expected them to do so.

And the following chart plots the proportion of years that saw positive returns in each of the four years in the PEC.

FTSE All-Share and 4-yr PEC (positive returns)

For the 15 presidential cycles from 1948 to 2008, the FT All-Share Index saw positive returns in every third year of the cycle. But in the two cycles since 2008, the Index has had negative returns in PEC(3).

US presidential election data

For reference below is data on the US presidential elections since 1948.

Election date Elected President Party Popular vote(%) Electoral vote
02 Nov 1948 Harry Truman Dem 49.6 303
04 Nov 1952 Dwight Eisenhower Rep 55.2 442
06 Nov 1956 Dwight Eisenhower Rep 57.4 457
08 Nov 1960 John Kennedy Dem 49.7 303
03 Nov 1964 Lyndon Johnson Dem 61.1 486
05 Nov 1968 Richard Nixon Rep 43.4 301
07 Nov 1972 Richard Nixon Rep 60.7 520
02 Nov 1976 Jimmy Carter Dem 50.1 297
04 Nov 1980 Ronald Reagan Rep 50.7 489
06 Nov 1984 Ronald Reagan Rep 58.8 525
08 Nov 1988 George H. W. Bush Rep 53.4 426
03 Nov 1992 Bill Clinton Dem 43.0 370
05 Nov 1996 Bill Clinton Dem 49.2 379
07 Nov 2000 George W. Bush Rep 47.9 271
02 Nov 2004 George W. Bush Rep 50.7 286
04 Nov 2008 Barack Obama Dem 46.2 365
06 Nov 2012 Barack Obama Dem 48.1 332

See also: other articles on US elections

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Equities in US presidential election years

The 14 charts below show the performance of the FTSE All-Share index over the 12 months of a US presidential election year. For example, the first chart shows the January-December performance of the UK market in 1960, the year John Kennedy was elected President of the United States. The dashed line in each chart indicates the date of the election.

Market in US presidential elections years

Historically, the UK market tends to rise in the few weeks leading up to the election.

The following chart plots the annual returns of the FT All-Share Index in years of US presidential elections.

FT All-Share annual returns in US presidential years


See also:

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GBP and USD in 3Q 2016

GBP

The following chart gives the changes in currency rate for the UK pound for the third quarter 2016. For example, the UK pound fell 9.1% against the South African Rand in 3Q 2016.

GBP forex rates 3Q 2016

USD

The following chart gives the changes in currency rate for the US dollar for the third quarter 2016. For example, the US dollar increased 1.1% against the Canadian dollar in 3Q 2016.

USD forex rates 3Q 2016

 

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International markets 2016 3Q YTD

The following charts plot the performance of a selection of world markets over the first three quarters of 2016. 

Domestic currency

International markets 2016 3Q YTD returns

GBP

The following chart plots the GBP-adjusted returns (i.e. these are the returns for a GB pound investor).

International markets 2016 3Q YTD [GBP] returns

USD

The following chart plots the USD-adjusted returns (i.e. these are returns for a US dollar investor).

International markets 2016 3Q YTD [USD] returns

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International markets 2016 3Q

The following charts plot the performance of a selection of world markets in the 3rd quarter 2016. 

Domestic currency

International markets 2016 3Q returns

GBP

The following chart plots the GBP-adjusted returns (i.e. these are the returns for a GB pound investor).

International markets 2016 3Q [GBP] returns

USD

The following chart plots the USD-adjusted returns (i.e. these are returns for a US dollar investor).

International markets 2016 3Q [USD] returns

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Sell Rosh Hashanah, Buy Yom Kippur

In 1935, the Pennsylvania Mirror referred to a Wall Street adage, “Sell before Rosh Hashanah; buy before Yom Kippur”. Recently an academic paper quoted this article and set out to establish if the adage was true and still valid today.

The theory is that the market is weak during the approximately seven trading-days gap between the Jewish New Year (Rosh Hashanah ) and the Day of Atonement (Yom Kippur). To test this theory the authors studied the results of short-selling the Dow Jones Industrial Average on one of the three days before Rosh Hashanah and buying back on one of the three days following Yom Kippur. They analysed the nine different combinations of trade dates, i.e. selling on the third day before Rosh Hashanah (R-3) and buying back on the day after Yom Kippur (Y+1), R-3 and Y+2, R-3 and Y+3, R-2 and Y+1 etc. The period tested was 1907 to 2008.

The paper found that the mean returns for the DJIA for the nine trade dates considered ranged from -0.47% for R-3 and Y+2 (i.e. shorting three days before Rosh Hashanah and covering two days after Yom Kippur) , to -1.01 for R-2 and Y+1.

In other words, they found that the market had indeed been weak between the two Jewish holidays, and that five of the nine scenarios yielded statistically significant results. They checked to see if this Jewish Holiday Effect might have diminished in recent years and found that the effect over 1998-2008 was actually stronger for six of the nine trade scenarios than for the prior period 1907-1998.

So, what’s the reason for this?

The authors of the paper found that this was not a result of the influence of other anomalies (e.g. the weekend effect), nor was it the result of data outliers. One Wall Street trader gave the traditional explanation that people of the Jewish religion “wished to be free (as much as possible) of the distraction of worldly goods during a period of reflection and self-appraisal.” Of course Jewish traders are only a small part of the market, but at the margin their withdrawal from the market over this period may increase volatility and risk and thus discourage others from trading, and then the arbitrage traders exploiting the effect can make it self-fulfilling.

Is this a peculiarity of just the US market, or is the effect present in other markets?

The above cited paper starts by quoting a 9 September 1915 New York Times article titled “The London Market Quiet – Jewish Holiday Causes Small Attendance on the Exchange”, the newspaper reported that money and discount rates on the London Stock Exchange were “easy today” and attendance at the exchange was low due to the Jewish holiday of Rosh Hashanah.

So, might this effect still be in force in the London market today?

The following chart shows the mean returns for the FTSE 100 Index for the nine combinations of trade dates (as above) for the period 1984-2013.

Average FTSE 100 returns for period between Rosh Hashanah and Yom Kippur [1984-2015]

As can be seen, the market was weak for all nine combinations of trade dates over the Rosh Hashanah to Yom Kippur period. The weakest combination was for selling on the third day before Rosh Hashanah and buying back on the second day after Yom Kippur (T2) when the mean return has been -1.3%.

The Jewish Holiday Effect would therefore seem to be as strong in the London market as that in New York.


The above is an extract from the Harriman Stock Market Almanac 2017.

 

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Olympic Games and the stockmarket

Does analysis of the historic behaviour of stock markets around the time of the four-yearly Olympic Games have anything of interest for investors?

The Olympic Games are a major event, often requiring much spending to improve infrastructure; and such spending can provide a fillip to a nation’s economy. If this affects prices on the stock market it is likely to happen soon after the initial announcement of a country winning the competition to host the event – so, long before the Olympics actually take place. The hosts for the Olympic Games are usually announced seven years in advance.

However, in this analysis we will look at the performance of host country stock markets in the year of the Olympics itself.

The following chart shows the performance of stock markets in countries that have recently hosted the Olympics: US (1984, 1996), Australia (2000), Greece (2004), UK (2012). (NB. China was omitted as it hosted the Games in 2008 – a year when stock markets had their focus on other matters; the share price of National Bank of Greece was used as a proxy for the Greek stock market.). The index data has been re-based to start at 100. The Games generally take place in August-September (indicated by the shaded portion in the chart).

Stock market performance of Olympics hosts

There are no easily discernible general trends from the above chart.

To analyse this in some more detail, the following chart plots the average performance for all the markets over three periods:

1         Before games: from 1 January to the start of the games

2         During games: the two-three week period of the games

3         After games: from the end of the games to 31 December

The darker bars show the average performance calculated excluding China and Greece.

Average performance in year of OlympicsGenerally, equities in host country markets appear to be weak in the months leading up to the games, perhaps when the media runs stories of cost overruns and missed timetables. And then there appears to be a relief rally afterwards.

Note:

A recent academic paper analysed the performance of stocks for two hosting countries: China in 2008 and the UK in 2012. The paper summarised its findings as-

Olympic “euphoria” is sufficient in both China and the UK to influence stock returns and valuations but the overall fundamental benefits of the Olympics are small.


This article is an extract from The UK Stock Market Almanac 2016.

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Currency rate changes 2016 1H

GBP

The following chart shows currency rate changes against GBP for the first half 2016. For example, GBP fell 22.5% against the Yen.

Currency rate changes against GBP 2016 1H

USD

The following chart shows currency rate changes against USD for the first half 2016. For example, USD increased 10.5% against GBP.

Currency rate changes against USD 2016 1H

 

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