Presidential elections are notorious for stirring up market volatility—offering both challenges and opportunities. In this breakdown, we’ll dive into the post-election performance of SPY (S&P 500 ETF) and QQQ (Nasdaq-100 ETF) across the last six U.S. elections. Plus, I’ll walk you through five actionable swing trade setups. This includes how to leverage small-cap momentum. Small-cap momentum can thrive under certain election outcomes.
How Elections Drive Markets: What Traders Need to Know
Elections influence more than just politics—they move markets by shifting sentiment, policy expectations, and sector dynamics. Most people focus on the winning candidate. However, the macroeconomic backdrop, such as recession risks or interest rate trends, tends to have a bigger impact. In this breakdown, I’ll show you how SPY and QQQ have reacted to elections since 1996 and highlight key swing setups to navigate volatility and find opportunities.
SPY and QQQ: Performance After the Last Six Elections
2016: Trump’s Surprise Victory
- SPY: +5.7%
- QQQ: +3.5%
After an overnight drop, the market rallied hard on optimism about tax cuts and deregulation.
2012: Obama Re-elected
- SPY: +1.2%
- QQQ: -0.9%
The recovery from the financial crisis was still slow, and concerns over the “fiscal cliff” muted post-election gains.
2008: Obama Wins During the Financial Crisis
- SPY: -14.5%
- QQQ: -15.2%
The financial crisis overshadowed everything, leading to steep declines—proving macro conditions matter more than political shifts.
2004: Bush Secures a Second Term
- SPY: +6.2%
- QQQ: +6.5%
Economic growth and policy continuity fueled optimism, sending markets higher.
2000: Bush vs. Gore – The Contested Election
- SPY: -7.8%
- QQQ: -24.9%
The combination of a contested election and the dot-com bubble bursting hit tech stocks especially hard.
1996: Clinton Re-elected
- SPY: +8.7%
- QQQ: +7.8%
With the economy booming, both ETFs posted solid gains as investors welcomed continued growth.
The Big Picture: Post-Election Performance Trends
Average Returns (Day After Election to Year-End):
- SPY: +0.6%
- QQQ: -3.9%
SPY has shown relative stability in post-election periods, while QQQ tends to be more volatile due to its tech-heavy focus. Years like 2000 and 2008 demonstrate how sector-specific issues (like the dot-com crash and the financial crisis) can weigh heavily on tech stocks.
Market Trends Since 1900: What the Data Tells Us
Looking at election years going back to 1900, the S&P 500 has produced positive returns 74% of the time. On average:
- Republican Presidents: +15.3%
- Democratic Presidents: +7.6%
While markets typically rise regardless of who wins, the volatility surrounding elections creates swing trade opportunities. Traders can capitalize on short-term reactions to policy announcements while positioning for longer-term stability.
Five Actionable Swing Trading Setups for Election Cycles
1. Pre-Election Consolidation Breakout
- Setup: Markets often consolidate in the weeks leading up to elections as investors wait for clarity. Look for breakouts from these patterns once results are announced.
- Strategy: Enter on the breakout and use the 20-day moving average as a trailing stop.
- Example: After Trump’s 2016 victory, SPY broke out of a tight range, offering a solid swing opportunity.
2. Post-Election Options Play: Straddles and Strangles
- Setup: Use straddle or strangle strategies to take advantage of post-election volatility.
- How It Works:
- Straddle: Buy a call and a put at the same strike price.
- Strangle: Buy a call and a put with different strike prices.
- Example: The contested 2000 election was a perfect setup for a straddle, as volatility spiked while the market waited for clarity.
3. Fade the Overreaction
- Setup: Markets often overreact to election news, presenting opportunities to fade extreme moves.
- Example: In 2020, the market surged on vaccine news and stimulus hopes. Traders who faded the rally at key resistance levels could lock in quick profits.
- Pro Tip: Use RSI to spot overbought or oversold conditions before entering your fade.
4. Sector Rotation Based on Election Outcomes
- Setup: Different sectors respond differently to policy changes.
- Republican Wins: Financials, energy, and defense stocks tend to rally.
- Democratic Wins: Green energy, healthcare, and tech often outperform.
- Example: After Trump’s 2016 win, financials rallied on deregulation hopes, while in 2020, tech stocks surged under Biden’s clean energy initiatives.
5. Small-Cap Momentum Post-Election
- Setup: Small-cap stocks (Russell 2000) often outperform large-caps after elections, especially when stimulus measures or pro-growth policies are expected.
- Strategy: Use a momentum approach by tracking small-cap ETFs like IWM (Russell 2000 ETF). Look for breakouts above the 50-day moving average to enter.
- Example: Following the 2020 election, IWM saw major gains as investors bet on stimulus and economic reopening.
- Risk Management: Place stops below the 50-day moving average and scale out if momentum slows.
Risk Management Tips for Election Swing Trades
- Position Sizing: Keep exposure smaller during high-volatility periods.
- Hedge with Inverse ETFs: Use SH (S&P 500 inverse) to protect against sudden drops.
- Stop-Loss Orders: Keep your stops tight to protect profits from reversals.
Final Thoughts: Trading the Election Cycle with Confidence
Elections bring volatility, but they also create opportunity. SPY tends to provide some stability, while QQQ is more volatile due to its tech exposure. Small-caps are another key weapon in your arsenal—they often rally on optimism about economic growth and stimulus measures.
By using setups like fading overreactions, trading small-cap momentum, and rotating into favorable sectors, you can turn election uncertainty into profits. Stay flexible, manage your risk, and focus on the bigger picture as the political landscape shifts.
Trade smart, and keep your eye on macroeconomic trends—they’ll often tell the real story beyond the election headlines.
With these strategies in your toolkit, you’ll be ready to navigate the election cycle like a pro and capitalize on market turbulence. Stay sharp, stay disciplined—and as always, happy trading!
For more on swing trading check out my swing service at bullsonwallstreet.com
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Paul J Singh 
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