Some investors are increasingly worried about a contested US presidential election outcome this November, so today we’re updating our “November-December 2000 Election Playbook” by breaking down sector, small cap and gold returns. The 2000 national election was the only modern-day contested presidential election outcome, so it’s the single case study we have to assess how US equity markets responded to those events. Here is that data, ranked best to worst, with the S&P 500’s return noted to show under/outperformance:
November 7th – December 13th, 2000: Election Day to the day after the Supreme Court decision Bush v. Gore was announced on December 12th.
- Consumer Staples: +3.95%
- Materials: +3.49%
- Utilities: +1.96%
- Industrials: +0.54%
- Financials: -0.72%
- Consumer Discretionary: -0.89%
- Energy: -1.56%
- S&P 500: -5.02%
- Health care: -5.07%
- Technology: -16.50%
Takeaway: while an unknown presidential outcome for 5 weeks contributed to US equity market volatility, there were also many concerns about an economic slowdown and follow-on impact on tech sector fundamentals. For example, even after the Supreme Court finalized George W. Bush as the winner on December 12th, the S&P 500 sold off as a revenue and earnings warning from Compaq Computer that day further fueled worries over tech profitability.
Consequently, more defensive sectors – i.e. consumer staples, materials and utilities – posted positive returns from Election Day to the Supreme Court decision. It’s important to note, however, that they worked not just due to election uncertainty, but also a weakening outlook for the US economy and tech sector.
December 13th – December 29th, 2000: Day after the Supreme Court decision until the last day of trading for the year.
- Energy: +5.37%
- Materials: +4.79%
- Consumer Discretionary: +4.45%
- Consumer Staples: +3.37%
- Financials: +2.48%
- Industrials: -0.95%
- S&P 500: -2.92%
- Utilities: -3.41%
- Health care: -4.92%
- Technology: -14.66%
Takeaway: even after investors knew George Bush would become President, there were still concerns over tech sector profitability, recent interest rate hikes to combat inflation, and a slowing US economy. Tech bore the brunt of it, of course, as the Internet 1.0 Bubble was still popping. Most sectors rallied after the Supreme Court decision into year-end, however, led by energy amid rising oil prices and an incoming business-friendly Republican President. Also, in early December then-Fed Chair Alan Greenspan also signaled the US economy may be slowing enough to lower interest rates in the coming year.
Other asset classes over these two timeframes:
November 7th – December 13th 2000:
- Gold: +1.63%
- 10-year Treasury yields: 5.87% to 5.29% (i.e. Treasuries rallied)
- S&P 500: -5.02%
- VIX: 24.91 to 23.63 (note: the VIX declined over this period of political uncertainty)
- Russell 2000: -7.13%
December 13th – December 29th, 2000:
- VIX: 23.63 to 26.85 (note: the VIX rarely goes up at year-end, but it did here, post Bush v Gore)
- 10-year Treasury yield: 5.29% to 5.12% (i.e. Treasuries rally further)
- Russell 2000: +2.90%
- Gold +1.27%
- S&P 500: -2.92%
Takeaway: it’s no surprise that 10-year Treasuries and gold rallied amid election and economic uncertainty, but the VIX actually reached its highest level between Election Day and year-end after a known presidential outcome on 12/20 at 31.74. While small caps fared worse than large caps from Election Day through the Supreme Court decision, they advanced thereafter ahead of the Inauguration of a business-friendly incoming president.
In sum, a contested election does create uncertainty which can favor more defensive sectors or asset classes – i.e. consumer staples and gold – until there is a known outcome, but the economic/market backdrop at the time also plays a very large role. Additionally, investors start discounting the presidential winner based on legal proceedings and eventually know the outcome, as reflected in the positive returns of sectors that would benefit from Republican policies (i.e. energy and financials). The upshot: a Trump versus Biden contested result could contribute to greater equity market volatility and favor more defensive plays until a winner is known, but likely as a compounding effect on the current COVID-related macroeconomic backdrop.