How does the US election affect the performance of the S&P 500? Via Investing.com

As the US election approaches, its impact on has become a focal point for investors.

According to Wells Fargo, the period leading up to Election Day typically sees market weakness, with the S&P 500 averaging a negative return of 4.3% during the two months leading up to the election.

They explain that this pattern has been consistent over the past six presidential election cycles, with both small-cap and mid-cap indexes showing similar declines.

Wells Fargo points out that during these pre-election periods, defensive sectors such as Staples, Utilities and Health Care have tended to outperform.

“Defensive sectors — staples (+3.9%), utilities (+3.4%) and healthcare (+2.3%) — were the best relative seasonal performers,” Wells Fargo writes.

In contrast, sectors such as Real Estate and Information Technology performed poorly, with average relative returns of -3.5% and -3.0%, respectively.

Despite this pre-election weakness, Wells Fargo points out that strong returns and cyclical outperformance tend to follow elections. This suggests that while caution is warranted in the run-up to Election Day, there could be opportunities for gains once the election uncertainty fades.

The bank explains that this election-related market behavior occurs in a broader context where other factors, such as Federal Reserve policies, also play a significant role.

Wells Fargo notes that with September Fed easing looking certain, attention has turned back to the election’s potential impact on markets.

While the S&P 500 often struggles in the months leading up to the US election, the period after usually brings a rebound, particularly for cyclical sectors, as election uncertainties are resolved.