How does the ASX 200 perform on US election day?

Thanks to the time difference, Australian investors will have front-row seats for the US presidential election results, which begin streaming in around 10 am AEDT.

This gives the S&P/ASX 200 free reign to trade around the potential outcomes as they unfold. According to UBS, a Trump win is poised to benefit sectors such as financials, gold and managed care insurers, while Harris may benefit EVs, homebuilders and discount retailers.

Since 1990, the ASX 200 has averaged a slight gain on election day, accompanied by a significant spike in market volatility. We'll observe some of the key trends below.

US elections at a glance

• In 1992, Bill Clinton defeated incumbent George Bush

• In 1996, Bill Clinton was re-elected, defeating Bob Dole

• The 2000 election between George W. Bush and Al Gore was particularly close and controversial, with the outcome determined by a narrow margin in Florida

• In 2008, Barack Obama became the first African American president, defeating John McCain

• In 2012, Obama was re-elected, defeating Mitt Romney

• The 2016 election saw Donald Trump defeat Hillary Clinton in a surprising upset

• In 2020, Joe Biden defeated incumbent Donald Trump in an election that saw record-breaking voter turnout

ASX 200 performance on election day

The first polling stations will close around 10 am AEDT on Wednesday and results are expected to begin trickling through an hour later.

The S&P/ASX 200 typically shows mixed performance around US presidential elections. In the past eight election days, the market has averaged a modest 0.4% gain but positive only 50% of the time.

The week following elections has historically been challenging, with the market declining an average of 0.8%. However, this figure is heavily skewed by the 2008 election, which takes place during the Global Financial Crisis – excluding that outlier, the market is up an average 0.44% in the first week. Still, positive returns occurred in only about one-third of cases (37.5%).

Looking further out, the market has averaged a 0.1% gain a month later and positive 62.5% of the time. Again, excluding the GFC outlier, the one-month return jumps to 2.7%.

Brace for volatility

Markets tend to swing heavily as it digests new data. Here are a few key data points to note for S&P/ASX 200 price action.

• Low to high: This counts the % change from the session low to session high. The data suggests the ASX 200 experiences an average 1.80% range on election day

• Low to close: This measures the % change from the session low to where the market closes. The data suggests the market has the tendency to close above worst levels.

• Open to low: This measures the % change from where the market opens to its lowest point in the session. The data suggests that the market tends to open around lows. Although the last two elections (2016 and 2020) observed knee-jerk selloffs (before bouncing towards the close)

The VIX is a classic measure of volatility, which tracks S&P/ASX 200 index option prices as a means of monitoring anticipated levels of near-term volatility.

• High readings (20+) are bearish and indicate uncertainty

• Normal readings (15 to 20) suggest a slight bullish bias

• Low readings (<15) are bullish and indicate low volatility

My data for the S&P/ASX 200 VIX index only dates back to the past two elections. In both cases, the market was already experiencing heightened volatility but the turbulence intensified as election results rolled in throughout the trading session.