Do investors swing toward optimism around U.S. presidential inauguration days, focusing on future opportunities? Or, does the day remind investors of political uncertainty and conflict? To investigate, we analyze daily returns of the S&P 500 Index around inauguration day. We consider subsamples of no party change and party change. Using inauguration dates since 1928 and daily S&P 500 Index levels during 1928 through 2020, we find that:
We consider election-based inaugurations only, excluding Truman’s first, Ford’s and Johnson’s first inaugurations, leaving 23 events.
We also consider exclusion of the inauguration of 1933, leaving 22 observations. The New York Stock Exchange shut down for several days after inauguration day in 1933 due to the mandatory national bank holiday.
The following chart shows average cumulative S&P 500 Index returns from 21 trading days before (-21) through 21 trading days after (+21) inauguration day:
- Overall – all days during 1928 through 2020.
- All Inaugurations – 23 election-based inaugurations during 1928 through 2020.
- No Party Change – 13 inaugurations with no change in political party.
- Party Change – 10 inaugurations with no party change.
Results suggest that the months before and after inauguration day are unfavorable, driven by those events when party holding the presidency changes. Variability of returns (not shown) tends to be high on inauguration day and especially high the day after.
However, the sample of inaugurations is small, and the subsamples are very small.
What happens when we exclude the disrupted year of 1933?
The next chart repeats the above analysis after excluding 1933. Findings are similar, but less dramatic, than those above. The high variabilities of returns on inauguration day and the day after disappears after excluding 1933.
Again, the sample of inaugurations and subsamples are very small for inference.
In summary, best guess is the U.S. stock market will be relatively weak around the upcoming inauguration day.
Cautions regarding findings include:
- As noted, any return anomaly is small compared to return variability, so experience by event varies widely.
- To the extent that the distribution of daily S&P 500 Index returns is wild, interpretation of the average return breaks down.
