The Inauguration Effect

Are you ready for the flurry of executive orders on January 20th, particularly the pro-market or pro-asset class ones? You should be, because this is what will impact the market.

Pre Inauguration

Based on historical analysis of market performance around presidential inaugurations, certain key patterns emerge in the 10 days before, during, and after the event. In the 10 days leading up to the inauguration (typically around January 20th), markets tend to be choppy but display an upward bias, with a win rate of 75-80% positive returns and average gains ranging from +0.5% to +1.2%.

Inauguration Day

This period often features higher volatility as positions adjust and lower trading volume in the days immediately preceding the event. On inauguration day itself, trading is generally positive but muted, with a win rate of 65-70% for positive days. Range-bound price action is common due to lower volume, as market participants focus on the ceremony. The afternoon session tends to be more directional as clarity increases.

This pattern was observed during the 2021 and 2017 inaugurations. In 2021, the S&P 500 rose by approximately 0.82% in the 10 days leading up to the inauguration, with moderate volatility and a choppy upward bias.

Post Inauguration

Post-inauguration, it gained 1.47%, with lower volatility and a steady uptrend. Similarly, in 2017, the market increased by 0.13% before the inauguration amid higher volatility and range-bound behavior, followed by a 1.06% gain post-event, characterized by decreased volatility and a breakout to higher levels. These observations support the broader trend that markets tend to perform better in the 10 days following the event, showing stronger directional movements, a win rate exceeding 80%, and average gains between 1.5% to 2.5%, as trading volume normalizes and policy clarity reduces uncertainty.

Given these patterns, traders may consider reducing position sizes 5-10 days before the inauguration and focusing on intraday strategies.

After the event, adding size to positions 2-3 days later and targeting breakout setups can be effective, with clearer directional movement and better trading volume.

Leading into PCE and PPI data.

However, key risks include policy uncertainty, volatility spikes, potential impacts from portfolio rebalancing, and lower liquidity during the ceremony. Overall, post-inauguration trading presents a more favorable environment for trend-following and breakout strategies.