John Lynch Chief Investment Strategist, LPL Financial
Last week marked the one-year anniversary of President Trump’s Election Day victory. The period since the president was elected has been one of the best ever for U.S. stock markets. The 28.5% rally in the Dow Jones Industrial Average (Dow) one year after the election ranks 4 out of 31 overall among one-year post-election rallies for U.S. presidents since the inception of the Dow in 1896 and is one of the best performances since World War II (WWII). The best? President Coolidge during the Roaring Twenties. The worst? Woodrow Wilson’s second term during WWI.
A Closer Look at the Past Year
The Dow gained 28.5% the year after the election, which ranks as one of the best one-year post-election performances ever; digging further into the numbers reveals some other interesting developments:
The post-election period has been among the least volatile ever for equity markets. In fact, the largest pullback for the S&P 500 Index since Election Day has been only 2.8% (from peak to trough), one of the smallest pullbacks over a full year in history.
The Dow set 76 new all-time closing highs in the past year—the most ever in a postelection year—with the previous record of 60 coming during President Coolidge’s first and only term.
The Dow closed either higher or lower by more than 1% only 11 times, tying the least ever which took place after President Lyndon B. Johnson (LBJ) during the historically tranquil mid-1960s.
Needless to say, this combination of a strong bull market with historically low volatility is surprising. Interestingly, one of the other least volatile years ever took place the year after LBJ took office after John F. Kennedy’s assassination in November 1963. Few in 1963 expected calm markets in the year ahead, but in both cases a strong underlying economy covered up some blemishes.
How’d We Get Here?
A year ago at this time many thought that a Trump victory would lead to a stock market correction. Some pointed out that many new presidents were greeted with recessions early in their terms. In the wee hours on Tuesday, November 8, 2016 (more precisely, early Wednesday, November 9), a pullback occurred in the futures markets, but it was completely reversed during Wednesday’s session. In fact, the S&P 500 ended higher Monday, Tuesday, Wednesday, and Thursday of election week. So what did markets like so much back then that pushed stocks higher?