US Presidential Election: Top S&P 500 Sectors to Consider

The most recent market commentary from Bank of America (BofA) indicates that the S&P 500 frequently experiences headwinds during the September-October period in US presidential election years, but it has historically experienced a rally in November-December.

BofA’s note, which was published on Tuesday, identified sector performance trends. It demonstrated that Financials, Staples, and Utilities typically outperform prior to the election, while Energy and Materials acquire momentum following it.

In election years, the financial sector is the strongest during the historically lackluster months of September and October, with an average return of 1.42% over the past century.

During the same period, staples and utilities experienced returns of 0.51% and 0.30%, respectively. Nevertheless, financials continue to be robust, despite the fact that Staples and utilities tend to decline following the election.

According to analysts at BofA, financials are the third most profitable sector in November-December, with an average return of 4.19%. Meanwhile, utilities and essentials are relegated to the eighth and tenth positions, respectively.

The data indicates that energy and materials have experienced a more substantial post-election rebound. Energy, which has an average return of 0.18% in the pre-election period, has risen to second place in the final two months of the year with a 4.35% gain.

The most significant reversal occurs post-election, with materials, which typically struggle pre-election with an average return of -3.69%, ranking first with an average return of 4.77%.

Nevertheless, the healthcare and technology sectors have historically underperformed during both periods.

BofA observed that technology is ranked ninth in September-October and seventh in November-December, while healthcare is ranked eighth and sixth, respectively.

BofA’s analysis also underscored the significance of seasonal strategies, suggesting that investors could take advantage of the S&P 500’s anticipated recovery by investing in sectors such as industrials, telecommunication services, healthcare, technology, and materials during the September-October period of volatility.

When examining performance from Labor Day to Election Day and beyond, financials once again take the lead, rating first during the pre-election period and second post-election. Staples and utilities also exhibit favorable performance prior to the election; however, they frequently underperform during the post-election rally.

Conversely, technology, communication services, and real estate have consistently experienced negative average returns during both periods.