What happens to the stock market in an election year?
Historically, the S&P 500 has generally seen positive performance in past election years. For reference, the average annual rate of return for the S&P 500 has 10.8% over that 65-year time period. As the graphic below shows, the US stock market has rallied more than 80% of the time during the fourth year of the Presidential Cycle:
Will the S&P 500 perform better in an election year?
Historically, the S&P 500 has generally seen positive performance in past election years. For reference, the average annual rate of return for the S&P 500 has 10.8% over that 65-year time period.
How do presidential elections affect your investment returns?
“Returns are made over a full business cycle, which is longer than even one presidential term,” he says. “With presidential elections, you need to make sure to have all the components of a diversified portfolio in place, and then stick to a longer-term strategy that’s designed for more than one election cycle.”
What happens to the stock market in the 4th year of President?
As the graphic below shows, the US stock market has rallied more than 80% of the time during the fourth year of the Presidential Cycle: Logically, this pattern makes sense as incumbent politicians seek to stimulate the economy and markets to increase their odds of reelection, though its not foolproof.
What is the Democratic Party's priority?
One of the Democratic Party’s priorities emphasizes putting workers before shareholders, and restoring labor’s share of national income by strengthening unions and their bargaining rights. If successful, this would reverse a decade-long trend that has seen U.S. profits’ share of national income rise to 50-year highs, and labor’s share of national income fall to 70-year lows, as you can see in the chart below.
Do campaign proposals always result in legislation?
Campaign proposals do not always result in legislation – this is one of the facts of life of American elections. That said, the Democratic Party has targed five key areas for change: Taxes, labor, the environment, oil, and trade.
How differently do markets perform when a Democrat or Republican candidate is leading in major polls?
According to trends observed in the data from YCharts, when presidential candidates are “tied” in polling, the S&P 500 daily and cumulative returns are negative. On average, the trends in the YCharts data reveals the market tends to favor a Republican candidate leading the major polls.
Does the market react differently when a Republican or Democrat candidate is elected?
Although, historically the market may initially react favorably to a Republican candidate because of the belief that their policies are more “Business friendly” and therefore more stock-market favorable versus Democrat candidates.
How have other major asset classes performed under recent presidents?
According to YChart data, U.S. and Emerging Market Equities have been among the best performing major asset classes since Bill Clinton’s 1993 inauguration. In the last 30 years under four different presidents, U.S.
Summary – What does this mean for you?
What does this mean overall? If you’re basing your investment decisions on what party is or isn’t elected during presidential elections, you’re likely hurting your portfolio more than helping it. The person occupying the White House is just one of many variables that impact investment values.
What is the best rule of thumb for investing in election years?
Although a few investment opportunities may arise through an understanding of volatility and performance patterns in election years, Haworth says the best rule of thumb may simply be to stay invested and make sure your portfolio is rebalanced when necessary.
When will the S&P 500 return?
In the period since Joe Biden’s win in the 2020 election, the S&P 500 returned about 25 percent through end of May 2021. The election occurred during a period when the market was already enjoying a strong rally coming off the dramatic COVID-19 bear market of late February/early March 2020.
What does Hainlin believe about trade?
But more than any other policy issue, Hainlin believes trade is a key variable that is affected by election outcomes. He says it’s not just a matter of who occupies the White House (given the wide-ranging trade powers granted to the president).
Consensus of The Political Punditry
Now on to Broader Themes/Risks
- The two election outcomes most cited—and certainly asked about in the many virtual client events I’ve been doing— are the policy implications of a sweep by the Democrats and a contested election that extends uncertainty well past November 3. Before I get to the analysis of those outcomes, a “public service announcement” (PSA) is in order: Many investors who ask question…
Looking Back
- We use the Dow Jones Industrial Average (Dow) as the proxy for U.S. stocks in the analyses below because of its longer history than the S&P 500, which wasn’t created until the late-1920s. Likely highlighted more by Democrats than Republicans is the fact that, since 1900, the stock market has performed better when Democrats sit in the White House than when its inhabitant w…
Congress Matters as Well
- Of course, this is not just an election for president; but also for many members of Congress. The table below shows the history of party control over the presidency and Congress—covering all six possible outcomes. For what it’s worth, the best performance historically has come when there was a Democrat in the White House and a split in Congress. Caveat: notice that this has only be…
What Really Matters
- Last year, political historian and journalist Michael Barone wrote the book How America’s Political Parties Change (and How They Don’t)in which he “politely asks the prognosticators to take it easy.” As Barone highlights in the book, the current environment may not be as extreme in its differences relative to history as some believe. After every significant national crisis in America, …
Taxes
Labor
- One of the Democratic Party’s priorities emphasizes putting workers before shareholders, and restoring labor’s share of national income by strengthening unions and their bargaining rights. If successful, this would reverse a decade-long trend that has seen U.S. profits’ share of national income rise to 50-year highs, and labor’s share of national income fall to 70-year lows, as you ca…
Environment
- Markets appear to be betting that one of the most likely changes from the Trump administration to be implemented post-election are the environmental priorities being put forth by the Biden campaign. The MSCI Global Alternative Energy Index has widely outperformed traditional energy stocks (MSCI World Energy Sector Index) as Biden's lead in the polls solidified over the summer, …
Oil
- A component of the Democratic Party platform proposes that the U.S. would re-enter the Joint Comprehensive Plan of Action (JCPOA), the agreement negotiated in 2015 to contain Iran’s nuclear ambitions. The Trump administration withdrew from this agreement in 2018, and re-imposed sanctions that greatly complicated Iran’s efforts to export oil. This consequently promp…
Trade
- The U.S. has recently renegotiated trade deals with its four biggest trading partners: Mexico, Canada, China and Japan. Work on the trade deals with the United Kingdom and European Union are planned for 2021. Although a Biden administration would likely find a more common ground with Europe, leading to fewer frictions and a shorter path to a deal, his administration might be s…
Changing Leadership
- History has typically shown that the state of the market and economy have more of an impact on the outcome of an election than the election outcome has on the markets and the economy. But there are some potential impacts from a “Blue Wave” that are worth considering. The stock markets may welcome the potential for more fiscal stimulus (including in...