The markets are unpredictable — rising and falling. In any election year, an additional element of uncertainty is added to the investment mix. Investors can only speculate as to the outcome of the presidential election in November. The question then becomes what to make of the results from an investment standpoint. The answer, according to recent history, is that the impact on investors may be limited.
The immediate reaction to election results in the first weeks after the election, appear to work moderately in favor of Republicans. In the post-war era (beginning with the election of Democrat Harry Truman in 1948), the stock market (as measured by the Standard & Poor’s 500 stock index, an unmanaged index of stocks) rose an average of 2.25 percent in years when Republicans captured the presidency (nine times). Markets gained 1.31 percent from Election Day to the end of the election year, on average, in the six times Democrats won the presidential race.
A mixed bag of results
In the past, the situation changed over longer time spans. Using those same 15 post-war presidential elections as a measuring stick, history shows that over the first six months after elections, markets actually fared better when Democrats won compared to Republicans. The average return of the S&P 500 over the six months after the election was 5.61 percent when Democrats won and 2.17 percent when Republicans were elected.
Looking over the four-year period (from Jan. 1 post-election year through Dec. 31 of the last full year of each term), the advantage remains with Democrats. The average four-year return when Democrats won the nation’s highest office was 43.51 percent, while the average when Republicans prevailed was 31.80 percent.
The one thing that can be said with certainty is that there is no way to attribute market performance to election results. Any number of factors, from world events to the economic environment to other market conditions, will likely have far more impact than the party of the officeholder. The two best six-month returns occurred when Democrats were elected (Bill Clinton in 1996, +18.64 percent; John Kennedy in 1960, 15.30 percent). However, the two worst six-month periods also occurred under Democratic Presidents (Harry Truman in 1948, -8.03 percent; Jimmy Carter in 1976, -3.54 percent).
Another caution
Market analysts also may try to determine which industries or types of stocks will perform best based on the election outcome. This may be a factor to consider in making investment decisions, but certainly not the only one. Among the uncertainties that must be accounted for is that policies promoted by a candidate may never become reality once they are thrown into the mix of Washington politics.
You can expect to see a fair amount of media attention over the coming months about the prospects for investors based on election results. There is no way to predict the markets. To determine appropriate investment options for yourself, speak with your financial advisor.
This information is provided for informational purposes only and is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor.
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