Post-Election Celebrations We Have Seen Before

There was a post-election celebration by the stock market.  One can argue about whether the celebration was over specifically who won, or just that we got a clear result so we can avoid a 2000-style ("hanging chads) drawn out determination of the results.  I am reminded of a couple of other times in history when there were post-election celebrations in the stock market, and so this week I want to discuss both of those.

The chart above shows 1964.  That was a year when former VP Johnson ran for and handily won election.  Wall Street celebrated that the policies which seemed to lift the stock market out of the horrible 1962 bear market would be continued.

The price pattern comparison to 1964 is one that has been working for a while, except for a big period of inversion between the current pattern and the one of 60 years ago during mid 2023.  And it seems to still be working with the post-election reaction.  There was a climax point on Nov. 20, 1964 to that year’s post-election reaction, and then the SP500 fell 3.5% to a mid-December low.  After that, the bull market resumed, and had a great year in 1965.  But 1966 saw another bear market (off the right side of this chart).

The next chart shows 1980, which was when Reagan defeated Carter.  Stock prices were trending up most of the summer of 1980, as investors looked forward to a possible change of leadership.  And there was an especially strong post-election bounce in November 1980.  Expectations that all prior problems would be solved were running high.

But those expectations did not last long, and neither did the celebration of Reagan’s victory.  That November 1980 peak was the last word for a while, and stocks fell into a long grinding bear market during all of 1981 and into the summer of 1982.  The "Reagan Revolution" did not get off to a great start.  Eventually it turned into an enormous bull market from that 1982 bottom and Reagan won 49 of 50 states in the 1984 reelection, but getting through 1981 and the first half of 1982 was a rough time.  It did not help that Fed Chairman Paul Volcker was running double digit interest rates in his effort to combat inflation.

I suspect we are going to see something much more like 1980 this time versus 1964 in terms of the long term prospects, but the immediate prospects of a November top and temporary dip is a common theme from both instances.  The difference in 1964 was that there was not a great upheaval from the prior practices like there was in 1980-81.  We appear, from all of the news reports, to be facing a great upheaval this time, and such things usually do not go as smoothly as everyone was hoping they would right after the election.