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Banking stocks are winners as US elections approach: Kensho

A trader works on the floor of the New York Stock Exchange (NYSE).
Lucas Jackson | Reuters
A trader works on the floor of the New York Stock Exchange (NYSE).

Wondering how to position your portfolio ahead of the U.S. presidential election? History may help.

Bank stocks have outperformed against other sectors between Labor Day and the general election over the past six election cycles, according to data compiled by Kensho.

Since 1992, banks have posted an average return, relative to the broader market, of 6.59 percent from Labor Day through the election. Transportation and restaurants followed, returning 5.85 percent and 5.22 percent, respectively.

Kensho also found that individual stocks such as Zions Bancorporation and Bank of New York Mellon have posted returns of 20.59 percent and 11.87 percent, respectively.


"When the summer ends, volume picks up, and for big banks, that means higher trading revenues," said Phil Davis, CEO of PSW Investments.

The U.S. composite stock volume in August was the lowest for the year, according to FactSet.

Davis also noted that mergers and acquisitions tend to increase ahead of presidential elections. Tuesday saw a slew of M&A announcements, with Spectra Energy being bought out by Canadian pipeline firm Enbridge for $28 billion, and molecular diagnostics firm Cepheid announcing that it's being purchased by Danaher for $53 per share.

Adam Sarhan, CEO of Sarhan Capital, said there's another reason banks lead between Labor Day and presidential elections. "Investors don't like uncertainty, and as we get closer to the elections, we get less of that," he said, noting polls start painting a clearer and clearer picture of who will win.

Bank stocks have risen sharply over the past six months, with the SPDR S&P Bank ETF (KBE) and the SPDR S&P Regional Banking ETF (KRE) advancing 9.2 percent and 10.7 percent, respectively.

Mark Spellman, portfolio manager at Alpine Funds, said banks have been rising on the prospect of the Federal Reserve hiking interest rates. "I think they can raise in September, because there's no incumbent running; that could give them some political cover," he said. "If they do, it will obviously be a tail wind for banks."

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.