There a chorus calling for stocks to sell off on or around Donald Trump’s presidential inauguration on Jan. 20. What does history show?
Ryan Detrick, LPL Financial’s senior market strategist and historical number wrangler, found that there is a tendency for equities to weaken once the oath of office has been administered—but not right away.
The logic behind the calls for stocks to weaken after the swearing-in ceremony centers on the old market adage: “buy the rumor, sell the fact.” The argument is that the market rally that has followed Trump’s Nov. 8 election victory has factored in potential upside, leaving the market ripe for at least a near-term downturn once the new administration gets down to the actual work of governing.
The S&P 500 SPX, +0.28% is up around 6.3% since the votes were tallied, leaving it on track for the strongest election-to-inauguration run since Bill Clinton’s re-election in 1996 was followed by an 8.8% rise.
The notion of an inauguration-inspired market top, which MarketWatch has written about here and here, is so widespread that some market mavens see it as a contrarian indication that near-term weakness is less likely to materialize:
Detrick’s review of post-inauguration, stock-market performance since Dwight D. Eisenhower’s first oath of office in 1953 found that the S&P 500 SPX, +0.28% or its predecessor, actually tended to strengthen in the two weeks after a new term had begun (see table below):
LPL Financial
But, as the table shows, the one-month return has tended to be negative. Over three months, returns were positive around 56% of the time. That said, the 11 Republican inaugurations tended to see more weakness across the board, Detrick noted in the table below:
Detrick’s takeaway is that February, with a 1.8% average decline that makes it the worst-performing month in post election years, bears watching.
“It might be the shortest month of the year, but be on the lookout for any banana peels this year,” he wrote.
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