By Leo Chen, Ph.D. - Portfolio Manager & Quantitative Analyst
Markets dislike uncertainty. However, October is historically a volatile month, with the CBOE Volatility Index (VIX) averaging 22.26 in the past decade. In addition, the US presidential election is just one month away. Should investors choose risk-on or risk-off? One way to help answer that question is to dissect the stock market pattern for election years.
Figure 1. S&P 500 monthly performance from one month before presidential election to one year after.
Even though the market tends to be somewhat volatile in October, since 1950, the general trend has been quite flat in the month leading up to Election Day, with the exception of 2008. Not only do investors wait for the election results, they also seek to confirm upcoming policy changes before making investment decisions, as reflected by the 6-12-month post-election performance of the stock market.
This observation is…