The US dollar often faces headwinds during September and October in US presidential election years, but historically sees a rally in November and December, according to Bank of America’s latest market commentary.
A Bank of America note released Tuesday pointed to sector performance trends, showing that financials, commodities and utilities tend to outperform ahead of the election, with energy and materials gaining momentum afterwards.
During September and October, historically the weakest months of election years, the financial sector emerged as the strongest sector, returning an average of 1.42% over the past century.
Commodities and utilities stocks followed, with returns of 0.51% and 0.30%, respectively, over the same period. However, while commodities and utilities stocks tend to fade after elections, financials remain strong.
“The financial sector ranked third in November and December with an average return of 4.19%,” Bank of America analysts noted, while the commodities and utilities sectors fell to 10th and eighth place, respectively.
The data suggests that the energy and materials sector saw the biggest post-election recovery. The energy sector, which had averaged a modest 0.18% return in the run-up to the election, rose to second place in the last two months of the year, up 4.35%.
Materials, which tend to struggle before elections with an average return of -3.69%, see a dramatic turnaround after the election, taking the top spot with an average return of 4.77%.
However, the technology and healthcare sectors have historically underperformed during both periods.
“Technology ranked ninth in September and October and seventh in November and December, while healthcare ranked eighth and sixth, respectively,” Bank of America noted.
Bank of America’s analysis also pointed to the importance of seasonal strategies, suggesting that investors can benefit from the expected recovery in the S&P 500 by buying into sectors such as industrials, communications services, healthcare, technology and materials during the September-October weakness.
When looking at performance from Labor Day to Election Day and beyond, financials once again dominate, ranking first in the pre-election period and second in the post-election period. Basics and utilities also perform well in the run-up to the election but tend to underperform in the post-election rally.
On the other hand, the technology, telecom services and real estate sectors suffered consistently during both periods, resulting in negative average returns.
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