Investors may be in store for a big year-end move in the stock market, given how tight this presidential race has been.
The brokerage firm LPL Financial analyzed market performance following the nine presidential races since 1976 and found that stocks had bigger price swings following tight contests. The lack of a clear front-runner only causes investors to remain uncertain about how to proceed.
LPL categorized four races as close — 1976, 1980, 2000 and 2004 — based on the fact that the candidate who ultimately lost was ahead in the Gallup polls conducted during the campaign's final two weeks. After those four elections, stocks moved an average 6.4 percent up or down by year's end. That's nearly triple the average 2.2 percent change following elections that weren't as close.
One exception was 2008, an election that was relatively close, but not as tight as this one. Stocks proceeded to fall by nearly 10 percent after the election, but that year was an outlier because of the financial meltdown.
By almost any measure this year's election has been a tight one. A narrow victory is sure to deepen polarization and leave the winner without a strong mandate to face mounting problems — most urgently, averting the "fiscal cliff" of higher taxes and deep automatic cuts in spending to take effect beginning Jan. 1. LPL cautions that the negotiations to strike a deal, coming on the heels of a hard-fought election, could drive wide market swings and result in modest losses.Associated Press