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As election season approaches, investors often wonder how the market will respond. By analyzing previous election cycles, we can observe patterns that may help predict future market movements. Here’s a breakdown of key insights from historical data, particularly focusing on market reactions during and after the U.S. elections in 2016 and 2020.
 

Key Insights from US Presidential Election-Driven Market Patterns

• Accumulation Structures
• During both the 2016 and 2020 elections, the market formed an accumulation structure, a pattern indicating that investors were gradually buying assets in anticipation of a future uptrend. This structure often includes periods of high volatility and volume as uncertainty increases.
• Increased Volatility Pre-Election
• One week before both elections, volatility and trading volume spiked. This pattern suggests that the market experiences a "backing-up process," or a retest of previous support levels, as investors react to the heightened uncertainty surrounding the election.
• Post-Election Rallies
• Both 2016 and 2020 saw strong rallies after Election Day. Following the election results, markets kicked off an extended uptrend that lasted about a year, fueled by reduced uncertainty and renewed investor confidence.
• Similar Structures in the Current Market
• The market’s current structure resembles those seen in previous election years, featuring signs of strength rallies and backing-up processes. This similarity could mean that, once again, we’re due for a rally after the election.
• Potential Short-Term Pullbacks

Before the uptrend resumes, there might be a short-term shakeout or pullback to test recent lows. These moves could present buying opportunities for investors waiting for an entry point. Refer to the video below for a detailed analysis of the S&P 500 with analogue comparison in 20elections16 & 2020 US presidential election.

Video Length: 00:05:34

Historical patterns don’t guarantee future results, but they provide valuable insights. By studying past election cycles, investors can better understand potential post-election trends, helping them make informed decisions in an uncertain environment.

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