The S&P 500 often faces headwinds during the September-October period in US presidential election years, but historically rallies in November-December, according to Bank of America’s (BofA) latest market commentary.
BofA’s note published on Tuesday pointed to sector performance trends, showing that financials, Staples and utilities tend to outperform ahead of the election, while energy and materials gain momentum afterwards.
During the historically weaker months of September and October in pre-election years, financials stand out as the strongest sector, posting an average return of 1.42% over the past century.
Staples and Utilities are next, with returns of 0.51% and 0.30%, respectively, over the same period. However, while Staples and utilities tend to weaken after the election, financials remain strong.
“Financials rank third in the November-December period with an average return of 4.19%,” BofA analysts note, while staples and utilities fall to 10th and 8th, respectively.
According to the data, energy and materials are showing a more significant post-election recovery. Energy, which has averaged a modest return of 0.18% during the pre-election period, climbs to second place in the last two months of the year with gains of 4.35%.
Materials, which tend to struggle pre-election with an average return of -3.69%, saw the most dramatic post-election turnaround, taking the top spot with an average return of 4.77%.
However, the technology and healthcare sectors have historically underperformed in both periods.
“Tech ranks ninth in September-October and seventh in November-December, while healthcare ranks eighth and sixth, respectively,” BofA notes.
BofA’s analysis also pointed to the importance of seasonal strategies, suggesting that investors could benefit from an expected rebound in the S&P 500 by buying into sectors such as industrials, telecommunications services, health care, technology and materials during during the September-October weakness.
Looking at performance from Labor Day to Election Day and beyond, financials again dominate, ranking first during the election period and second after the election. commodities and utilities also perform well before the election, but tend to underperform in the post-election rally.
On the other hand, technology, communication services and real estate have consistently struggled in both periods, delivering negative average returns.
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Written by D Fernando
