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Thousands of people took to the streets of Chicago and Washington, D.C. to celebrate the re-election of Barack Obama. Apparently none of those people are investors.
Stocks are tanking today just hours after President Obama officially won re-election. All three major U.S. indices were down at least 1.75% in early trading.
That’s nothing new. The S&P plummeted 5.3% the day after Obama was first elected in 2008. Of course, that was also in the midst of the worst recession since the Great Depression.
The point is, it’s not worth getting too caught up in what the market does the day after an election. There are always going to be overreactions in both directions after such a history-altering event. What matters most is what happens over the long haul.
As we wrote yesterday, November is historically the best month for stocks in election years, with average gains of roughly 1.5%. This year’s looming fiscal cliff could throw a wrench into that theory, of course. But the market may not feel the full brunt of the fiscal cliff until next month, when the December 31 deadline truly comes into focus.
Generally – with November 2008 being a major exception – election months are great for financial markets since the cloud of uncertainty is finally lifted.
Sprinkle in the fact that November is the same month that Black Friday kicks off holiday shopping season – which is invariably good for the economy – and it’s easy to see why Novembers are normally bullish. Especially in election years.
So don’t panic no matter how far stocks plummet today. History tells us there are better days ahead in the month to come.