Stocks’ Next Move Could Be Down. What History Says About the Time Till Inauguration.

By Jacob Sonenshine

Jan. 7, 2021 2:32 pm ET

President Barack Obama was sworn in for his second term in 2013.

Justin Sullivan/Getty Images

President-elect Joe Biden will be inaugurated on Jan. 20. If history is any guide, stocks could falter until then.

A refresher: Stocks have recently been climbing, with the S&P 500 up in the mid teens in percentage terms since Sept. 23, the start of a fresh rally. As of mid afternoon on Thursday, the index had gained 1.3% so far this year. It has risen as the Georgia elections gave Democrats control of both houses of Congress, smoothing the path for heavier government spending to aid the economic recovery.

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The average move in the S&P 500 for the 10 trading days leading up to inaugurations dating back to Herbert Hoover’s 1929 swearing-in is a decline of 0.57%, Barron’s has found. The index has been up 10 times and down 13 times, or 57% of the time.

Thursday afternoon, a bit more than nine trading sessions remained before the day of the ceremony.

The biggest gain was to the tune of 6.7% ahead of Ronald Reagan’s inauguration in 1985. The biggest loss was a 13% drop before Barack Obama’s speech in 2009, when investors were still dreading the economic impact of the financial crisis that had grown worse in the fall of 2008.

There may—or may not—be something about a new president that drags on stocks, given that January is typically a strong month for the S&P 500. The index has been up in January for 58 years in the last 93, according to Yardeni Research. That’s the third highest rate out of any month, with only April and December ahead. The average move for January in that time is up 1.2%.

In 2020, stocks saw a strong December, with a gain of 3.7%, even after many on Wall Street warned the market was too hot to keep rallying in the short term. The average valuation for stocks in the S&P 500 is 23 times forecast earnings for the coming year, compared with less than 20 times historically.

“For a while, they’re going to continue to be willing to pay up because of the positive pro-growth backdrop of more Covid relief and additional fiscal stimulus over the course of 2021,” David Donabedian, chief investment officer of CIBC Private Wealth, U.S., said of investors.