How US markets react the day before a presidential election

A specialist trader works at his post on the floor of the New York Stock Exchange (NYSE) in New York City.
Brendan McDermid | Reuters
A specialist trader works at his post on the floor of the New York Stock Exchange (NYSE) in New York City.

Can American markets break their nine-day slide on the day before Election Day? Based on historical data and the fact that S&P 500 is up 1.5 percent since the market opened this morning — likely on the news the FBI's latest look into Hillary Clinton's e-mails has ended — investors should expect to see some solid gains today.

Since Oct. 25, the S&P 500 has been on a downward spiral, claiming the most consecutive negative days the index has had in 35 years. While the loss was modest — it fell by about 3 percent over the nine days — the drop has naturally made jittery investors even more nervous about what might happen around Election Day. It doesn't help that the NASDAQ was also down nine days in a row, while the Dow Jones Industrial Average had a week of straight losses.

While markets may be reacting positively to the latest political news — equities have tended to rise when Clinton has had an edge and fall when she doesn't — even if nothing new happened, equities likely still would have climbed, at least according to a decade of past performance.

According to Jeffrey Hirsch, who runs the Stock Trader's Almanac website, both the Dow Jones Industrial Average and the S&P 500 have climbed the day before an election 81.3 percent of the time since 1952, rising by 0.41 percent and 0.33 percent, respectively. Markets have also climbed 56.3 percent of the time on Election Day itself, with the DJIA rising, on average, by 0.24 percent and the S&P 500 by 0.22 percent.

Why the gain? Because people generally feel good about doing their civic duty. "It's a positive patriotic voting mentality," he said. "Everyone is happy going to the polls, and they're happy that the election is here and it's done."

It's similar to how markets react around Christmas, he said, when people feel good about themselves. "There's a bullish bias," he explained. Also coming into play is that on both the day before and the day of the election, investors are more preoccupied with voting than buying and selling stocks, he said.

Of course, this election season has been markedly different from cycles in the past, with plenty of negativity permeating both candidates' messages. Even so, he thinks that Monday and Tuesday will follow historical trends. If anything, people will be even happier that this election is coming to a close. "People are going to feel relief as we head into Election Day," he said.

While markets could certainty fall on Monday, the DJIA and the S&P 500 have only posted negative numbers on the day before an election three times over the last 64 years — both fell in 1988 and 2008, while the DJIA dropped in 1968 and the S&P 500 in 1972.

Investors do get more jittery on Election Day, with the DJIA falling seven times since 1952 and the S&P 500 dropping six times over the same time period, but in 2008 the DJIA climbed by 3.28 percent — the most of any Election Day — and by 1.02 percent in 2012. The S&P 500 jumped by 4.08 percent and 0.79 percent in both those years as well.

"It's a positive patriotic voting mentality. Everyone is happy going to the polls, and they're happy that the election is here and it's done." -Jeffrey Hirsch, CEO of Hirsch Holdings and editor of Stock Trader's Almanac

Other U.S. indexes have also followed the trend, with the NASDAQ and Russell 2000 up 72.7 percent and 77.8 percent, respectively, on the day before the election and 63.6 percent and 66.7 percent on the day of the vote.

What might happen the day after this election is anyone's guess, though many experts have said that a Donald Trump win would spook markets.

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Hirsch agrees that there could be more volatility post-election if Trump wins, but he points out any changing of the guard — from Democrat to Republican and vice versa — tends to move markets in the short term.

He thinks a Federal Reserve December interest-rate hike will have more of an impact on the market than the election will, and he said it's that decision that investors are waiting for most, not the one coming on Tuesday.

In any case, investors are now in a waiting game, even if more political bombshells show up over the final days of the campaign. "I wouldn't bet on calmness over the last few days, but for markets, I don't think anything crazy will happen," he said. "As we get closer, we might see some positive relief that the mudslinging is finally going to stop."

—By Bryan Borzykowski, special to CNBC.com