the General Election just weeks away, traders are getting excited about the potential impact on financial markets. There is a multitude of ways of trading it: while some will take a view on the FTSE 100, others will focus on sterling or individual shares.
Today we will look at the FTSE 100 since the 1980s. After the three Labour victories, the FTSE returned +24.7 per cent, minus 16.2 per cent, and +16.7 per cent by the end of the year. On average, the return has been +8.4 per cent. Clearly it’s a volatile outcome, but still positive on average.
For Conservative victories, the outcomes have been +2 per cent, +14.2 per cent and +9 per cent. We get a less volatile outcome, but intriguingly the average is the same: +8.4 per cent.
If we expand the experiment to include two years after the election, for Conservative victories, the FTSE 100 has returned +15.6 per cent on average, while the return has been +11.7 per cent after Labour victories.
These outcomes are interesting and are something to consider when choosing whether to be short or long the FTSE 100 after or ahead of the election. In regards to a potential winner, the bookmakers tend to beat the poll-makers, and they now give a 35 per cent probability of a Labour minority. The implied likelihood of a Conservative minority is 25 per cent.
Next week I will look at sterling and individual shares. You can also join me for a webinar which we are hosting ahead of the election. For more on this, feel free to contact me on firstname.lastname@example.org.
Visit our General Election poll tracker to see how the polls changed in the build-up to election day.