Trading Nation

Historical trend suggests election jitters will fade and Wall Street will see a year-end rally - regardless of who wins presidency

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Investors shouldn't fear a blue wave: CFRA's Sam Stovall

CFRA's Sam Stovall acknowledges the market may feel like a rollercoaster over the next few weeks.

But he believes any damage should be contained to November regardless of who wins the presidency.

"Investors say 'okay, usually by then we know who the president is, now we can try to organize our portfolios and our mindsets for the year ahead,'" the firm's chief investment strategist told CNBC's "Trading Nation" on Thursday. "And, December traditionally is a period in which seasonal optimism begins, and that's the reason why it is the best month of the year."

Stovall, who's known for building his market forecasts on historical trends, suggests not even a scenario where Joe Biden wins and the Democrats regain control of the Senate — a quintessential sweep — would alter his bullish view.

His reasoning: Wall Street generally likes unified governments.

"Under a blue wave, they actually do pretty well. The average price change for Decembers are about 1.5%. When under blue waves, December is up 2.7%," said Stovall. "When you look to the frequency, it's been up 100% of the time. Of course, there have only been seven observations."

In the years when Republicans won the presidency and held the majority in both houses of Congress, Stovall finds the S&P 500 did even better — up almost 3%.

Meanwhile, he notes the S&P 500 historically rises 1.5% in December in both presidential and non-presidential election years.

But there's a caveat to his bullish December outlook. According to Stovall, there needs to be a clear victor in the election before November ends.

Even if volatility creeps in December, Stovall is exhibits longer-term optimism. His rolling 12-month S&P 500 target is 3,650, which implies a 10% gain from the latest close.

"We get to that level, I think, because we finally have some sort of a stimulus that is injected into the system. We start to hear about infrastructure spending. We also get a vaccine, and the economic data comes through where our expectations are for a 5.5% increase in real GDP next year," Stovall said. "As a result, we start to see improvements on the current 25% increase in operating earnings anticipated for the coming calendar year."

Disclaimer

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Trend suggests investors will embrace December – no matter who wins the election