Which S&P 500 sectors perform best around US Presidential elections?

The S&P 500 often faces headwinds during the September-October period in US presidential election years but historically stages a rally in November-December, according to Bank of America’s (BofA) latest market commentary. 

BofA’s note published on Tuesday pointed out sector performance trends, showing that Financials, Staples, and Utilities tend to outperform ahead of the election, with Energy and Materials gaining momentum afterwards.

During the historically weaker months of September and October in election years, financials stand out as the strongest sector, posting an average return of 1.42% over the last century. 

Staples and utilities follow, with returns of 0.51% and 0.30%, respectively, during the same period. However, while Staples and utilities tend to fade post-election, financials remain strong.

“Financials rank third in November-December with an average return of 4.19%,” noted BofA analysts, while staples and utilities drop to 10th and eighth place, respectively.

Energy and materials show a more significant post-election bounce, according to the data. Energy, which averages a modest return of 0.18% in the pre-election period, climbs to second place in the final two months of the year with a 4.35% gain. 

Materials, which tend to struggle pre-election with an average return of -3.69%, sees the most dramatic turnaround post-election, ranking first with an average return of 4.77%.

However, the technology and healthcare sectors have historically underperformed throughout both periods. 

“Technology ranks ninth in September-October and seventh in November-December, while healthcare ranks eighth and sixth, respectively,” BofA noted. 

BofA’s analysis also pointed out the importance of seasonal strategies, suggesting investors could capitalize on the S&P 500’s expected rebound by buying into sectors like industrials, telecommunication services, healthcare, technology, and materials during the September-October weakness.

Looking at performance from Labor Day through Election Day and beyond, financials again dominate, ranking first during the pre-election period and second post-election. staples and utilities also perform well leading up to the election but tend to underperform in the post-election rally. 

On the flip side, technology, communication services, and real estate have consistently struggled across both periods, delivering negative average returns.