Some factors regularly outperform after US Presidential Elections:

  • Value, Small Cap and High Volatility tend to outperform following a Presidential election
  • While Growth, Momentum, and Quality consistently underperform
  • This is due to new economic packages stimulating the economy, encouraging a risk-on investment approach
  • These results hold regardless of which party wins or incumbency

Three investment styles regularly outperform

We looked at how stocks performed in the seven months following US elections over the past nine Presidential races:  1984 (Republican victory), 1988 (R), 1992 (Democrat victory), 1996 (D), 2000 (R), 2004 (R), 2008 (D), 2012 (D), and 2016 (R). The relative performance of seven investment Styles (Value, Growth, Yield, Quality, Size, Momentum, and High Volatility) was analyzed from November, when the elections are held, through the subsequent six months to May. We then compared the performance of each Style to its historic long-term average return over rolling seven-month periods.

Value, Small Cap and High Volatility consistently outperformed their historic seven-month average relative returns in the post-election periods, doing so in 7 of the 9 elections we examined (as shown in Table 1). Value stocks are companies that are trading at prices below their book value and can include banks, financial and industrial companies. Current examples are Walmart, Comcast, and Lowe’s. Growth stocks, which tend to promise large payouts in the distant future, consistently underperformed. Examples of Growth stocks today include tech companies like Tesla and Zoom.

Summary Results

Factor performance in the past 9 US Presidential ElectionsValue, Small Cap and High Volatility stocks outperformed their average relative return (over/under the market) in the period immediately following 7 of the past 9 US Presidential elections.


Investing in Small Cap and Value stocks, both known to outperform the market in the long term, have average 7-month performances of +0.3% and +0.7% above the market, respectively, between 1984 and 2016. But in the seven-month period following each election, they outperformed by +1.7% and +2.0%. Examples of Small Cap stocks are NCR, Netgear and Bed, Bath & Beyond.

Investing in High Volatility stocks, which underperform in the long term, has an average performance 0.2% below the market for the period. However, in the post-election periods it outperformed by +3%. Paypal, Facebook and Netflix are all examples of High Volatility stocks. All three outperforming investing Styles – Value, Small Cap and High Volatility – beat their own averages in 7 out of the 9 elections we examined, much more than the other investment Styles.

These Styles do well no matter who wins

These results hold regardless of which party wins the election and whether or not the elected President is an incumbent. In Table 2 we show the election-by-election results for all of the investment Styles. We highlighted in bold the years in which the three winning Styles outperformed their averages.

We found no dependence on either winning party or incumbency. Small Cap outperformed its own average 4 times under Republican winners and 3 times under Democrats, while Value and High Volatility stocks outperformed 3 times under Republicans and 4 times under Democrats. Small Caps and Value stocks outperformed 3 times under incumbents and 4 times under new Presidents, while High Volatility stocks outperformed twice under incumbents and 5 times under new Presidents.

Factor Performance in each of the past 9 Presidential ElectionsRelative performance over/under the market for each investment Style following each of the past nine elections. Outperformance following US Presidential Elections is only consistent for Value, Small Cap and High Volatility stocks, regardless of the party of the election winner. Election years with Republicans winning the White House are in red, and election years with Democratic winners are in blue. The small (i) following the year indicates elections in which the incumbent won re-election. The returns in bold indicate the five years in which all three Styles outperformed their averages.


Why does this happen?

One reason we believe that Value, Small Cap and High Volatility stocks do well after elections is that new (or re-elected) Presidents tend to push economic stimulus packages, resulting in a recovery/growth economy that encourages a risk-on investment approach. Value stocks outperform Growth stocks in this period because recovery / stimulus policy tends to be inflationary. This increases nearby cash flow (which Value stocks generate) and discounts long-term cash flow (which Growth stocks promise). Smaller companies tend to generate more volatile returns so it comes as no surprise that both of those investment styles – Small Cap and High Volatility – do well in a risk-on environment.

In this turbulent year of surprises, it’s difficult to say with certainty whether this well-established pattern of outperformance by Value, Small Cap and High Volatility stocks will return. If the US government passes a stimulus package to assist in the economic recovery from the ongoing COVID effects and the next US President behaves as previous Presidents have, then we should indeed expect outperformance by those three Styles whether the 2020 column ends up being colored red or blue.

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