'We’re in for a pretty dicey period of pretty choppy markets' following election: Expert

Randy Frederick, Vice President of Trading and Derivatives at Charles Schwab, joins Yahoo Finance's Kristin Myers to break down the latest market action as investors prepare for Election Day.

Video transcript

KRISTIN MYERS: We have been seeing a rally after one of the worst weeks in the markets since March. So we're joined now by Randy Frederick, Vice President of Trading and Derivatives at Charles Schwab. Randy, thank you so much for joining us today. So I want to talk about today market moves, of course, as we had one of the worst weeks in several months. You know, on Friday, I had been chatting about the vulnerability of the market to near-term risks.

Of course, I have to ask you, the election is tomorrow. I'm wondering, in your mind, how many of those risks really dissipate once this election is over?

RANDY FREDERICK: Well, that's a question no one can answer. Because we don't really know how quickly or how easily we'll have a resolution to who won. If it's a landslide one direction or the other and we have a pretty good reason to believe we know who won by the end of the day, then I think that the risks dissipate pretty quickly and the volatility comes down fairly fast. That's not the base case.

I think the base case from most people's perspective is that this is going to be drawn out for a while, at least for a few days, if not a few weeks. And if that happens, I think, frankly, we're in for a pretty dicey period of pretty choppy markets. That doesn't mean all down. Volatility, I always remind people, means big moves in both directions. And today, I think, is a good example, that we had a big down week last week. And then we get a bounce back today.

We're likely in for more of that type of movement if we don't actually know who won tomorrow.

KRISTIN MYERS: Now, you actually had posted a really interesting chart, not just on Twitter, but also in your weekly outlook note, about the S&P 500 performance under Democratic and Republican presidents. Now, you wrote that the S&P 500 has gained an aggregate of 710% under Democratic presidents and 375% under Republican presidents, which I think, for most people, they would think that the inverse would actually be true. What kind of relief rally do you think that we could expect if there is what is largely expected to be a Biden victory? And I'm wondering if you think perhaps the opposite could be true, if Trump wins outright, or wins, perhaps, even from a contested election, if he decides to contest the results and wins?

RANDY FREDERICK: Yeah, those are interesting statistics. That's one of the reasons why put them out there, is that I think, intuitively, people have a tendency to believe that Republicans are typically a little bit more business friendly, and therefore, the markets have performed better. But there have been some pretty weak performances under a couple of presidents. The most notable ones were President Nixon and President George W. Bush. Both of them had really terrible results during their presidencies.

Whereas we've had some great times. And that data that you're talking about goes all the way back to the Depression era. So it includes 100%-plus gains under President Roosevelt. And then it also includes things like Obama, who, under two terms, had more than 80% return. And the biggest gains of all actually happened under the two terms of President Clinton, primarily because he came into office at the very early stage of the internet bull market, which lasted 10 years. And he didn't leave office until just about 9 months after that market peaked.

So you could argue that maybe they're just lucky or unlucky depending upon when they become president. But the most important stat, which you didn't mention, is what happens during that entire aggregate time. You would say, oh, wow, if I can earn 700% under a Democrat versus 400% or something like that under a Republican, maybe I should just try that. But the overall result, if you'd state in the entire time, was in the 40,000% range. It's unbelievable.

And that's the reason why I put that information out there, is to tell people to don't make giant, large, massive portfolio changes based on who you think may or may not be president. It's best to stay invested the whole time. And that's one of the reasons why I talk about that.

KRISTIN MYERS: Definitely. Wise advice to leave this conversation on. We'll have to have you back, Randy, to chat a little bit more in the post-election aftermath. Randy Frederick, Vice President of Trading and Derivatives at Charles Schwab. Thanks so much for joining us.

RANDY FREDERICK: Mm-hm.