In the days surrounding U.S. presidential elections, financial markets often undergo shifts driven by both anticipation and reaction. By analyzing data over the last seven election cycles, we can gain insights into the patterns of various financial indicators—namely U.S. Treasury (UST) yields, yield curves, crude oil, gold, and equities. This study looks at how these indicators performed 20 days before and 20 days after Election Day, with each value indexed to the closing level on Election Day itself. Here’s a breakdown of key market behaviors over the last few decades.

U.S. Treasury Yields (2s, 5s, 10s, and 30s)

UST yields tend to reflect investors’ outlook on interest rates, economic growth, and inflation. Leading up to an election, yields have historically shown varied behavior across the short and long ends of the curve. Here’s how each maturity segment reacted around past elections:

• 2-Year Treasuries: Generally, yields on the 2-year Treasury showed a mixture of movement across election cycles, often remaining relatively stable immediately around Election Day. Notably, in 2008 and 2020, yields declined significantly in the pre-election period, possibly reflecting risk aversion during times of heightened uncertainty.
• 5-Year and 10-Year Treasuries: For intermediate maturities, election cycles like 2008 and 2016 saw larger shifts in yields, especially in the days after the election, suggesting that medium-term interest rate expectations can be sensitive to election outcomes.
• 30-Year Treasuries: Long-term yields demonstrated some of the most noticeable movements, especially in cycles like 2008, where yields plunged post-election, possibly in response to recessionary concerns. In contrast, other cycles like 2016 saw a surge in the 30-year yield following Election Day, reflecting optimism about long-term growth and inflation.

Yield Curves (2s5s, 2s10s, and 5s30s)

The yield curve, which represents the spread between short and long-term yields, often reacts sharply to perceived economic and policy shifts. Steeper curves can indicate growth expectations, while flattening can signal economic caution.

• 2s5s and 2s10s Curves: These curves showed some of the largest reactions in cycles like 2008, where a significant steepening occurred as the market anticipated policy changes and economic recovery measures. In other cycles, such as 2016 and 2020, these spreads initially widened before stabilizing or flattening in the days post-election.
• 5s30s Curve: The 5s30s spread experienced pronounced movements, particularly in 2008 and 2016. After the 2008 election, the curve steepened dramatically, reflecting the market’s expectations of a pro-growth agenda and potential monetary easing. By contrast, the 2020 election saw relatively muted moves in the yield curve, as pandemic-related uncertainties dominated.

Commodities (Crude Oil and Gold)

Commodities are highly sensitive to macroeconomic and geopolitical shifts. Both crude oil and gold exhibited distinct trends around election periods.

• Crude Oil (CL): In several election years, such as 2008 and 2020, crude oil prices saw declines in the lead-up to Election Day, only to stabilize or rally slightly afterward. These declines often reflect increased caution in the markets, as investors anticipate changes in energy policy. Conversely, some years, like 2016, saw post-election rallies as markets expected a pro-energy stance from the incoming administration.
• Gold (XAU): Gold, a traditional safe-haven asset, frequently demonstrated an initial increase before Election Day, as seen in 2008 and 2016. Post-election, gold prices generally leveled off, reflecting a shift from pre-election risk aversion to post-election normalization. In some years, such as 2012, gold prices saw little movement, indicating investor confidence in continuity.

Equities (SPX and NDAQ)

Equities are particularly sensitive to changes in fiscal and regulatory policy expectations. The S&P 500 (SPX) and Nasdaq (NDAQ) reveal some interesting trends over recent election cycles.

• S&P 500 (SPX): The S&P 500 typically saw moderate declines in the lead-up to elections, as investors weighed potential changes in policy and regulatory landscapes. In election cycles like 2016, however, equities surged post-election, indicating investor optimism regarding the pro-business policies anticipated from the incoming administration.
• Nasdaq (NDAQ): The tech-heavy Nasdaq often showed more volatility than the broader S&P 500, particularly in recent cycles. In 2008 and 2020, tech stocks initially dipped but experienced strong recoveries shortly after Election Day, suggesting continued investor interest in growth-oriented tech firms regardless of political shifts.

Political Composition and Market Reaction

Interestingly, the political makeup of the presidency and Congress has sometimes influenced market behavior, especially when there’s alignment or division in government branches. Historically, when one party controls both the White House and Congress, markets tend to react with greater confidence, possibly due to expectations of streamlined policy implementation. By contrast, divided governments (where one party controls the presidency and the other controls Congress) sometimes lead to more cautious market movements.

Key Takeaways

1. Short-Term vs. Long-Term Yields: Short-term Treasury yields tend to be less volatile than long-term yields around election times, reflecting the market’s sensitivity to both immediate and future economic policies.
2. Yield Curve Steepening and Flattening: Yield curves often steepen in periods of anticipated fiscal expansion and flatten when uncertainty or caution prevails.
3. Commodity Prices: Crude oil and gold prices are influenced by expectations around energy policy and risk sentiment, respectively. Gold’s typical pre-election uptick underscores its role as a safe-haven asset.
4. Equity Performance: Equities, especially tech stocks, often rally post-election when political outcomes support growth-focused policy expectations. The S&P 500 and Nasdaq tend to respond differently, with tech stocks sometimes showing more pronounced reactions.
5. Government Composition: The political alignment between the executive and legislative branches can influence market confidence, impacting yields, equities, and commodities.

In sum, market behavior around presidential elections is shaped by expectations of policy shifts, risk sentiment, and economic outlooks. Analyzing past cycles provides a useful framework for understanding potential market dynamics in future elections, helping investors prepare for both volatility and opportunity.