Election Uncertainty: A Historical Perspective on Market Performance
As the U.S. presidential election approaches, many investors are wondering how the outcome will impact their investments. However, a closer look at history reveals that the relationship between presidential elections and market performance is more nuanced than commonly thought.
Mixed Bag: S&P 500 Performance in Past Elections
According to investment research firm Morningstar, the S&P 500’s performance in the past 25 U.S. presidential elections has been a “mixed bag.” While forward one-year returns were positive for 10 of the 13 elections where Democrats won, and in nine of the 12 contests where Republicans won, the firm found that forward four-year returns were positive for Democrats in 11 out of 12 terms, compared to Republicans who had positive returns in nine out of 12.
A Historical Perspective: Presidential Terms and Market Returns
Mark Motley, portfolio manager at Foster & Motley, notes that all presidential terms since President Jimmy Carter have seen healthy stock market returns for the full four- or eight-years, with the exception of President George W. Bush due to the Great Recession. This suggests that presidential elections historically have not been as crucial to markets as many people think.
Predicting Market Movement: A Challenging Task
Joseph Veranth, chief investment officer at Dana Investment Advisors, emphasizes that it’s difficult to predict market movement based on the presidential election outcome or congressional control. Instead, he points to the strong U.S. economy, trending down inflation, and robust growth and earnings as positives for the market going forward.
Short-Term Volatility and Long-Term Trends
While the presidential contest may bring short-term volatility, particularly if a winner is not declared immediately, Larry Adam, chief investment officer at Raymond James, notes that the markets have moved higher in aggregate, regardless of which party has been in power. Furthermore, a president’s policies have shown little ability to predict which sectors may fare best in the long term.
A Word of Caution: Focus on Economic Fundamentals
Brad Houle, principal and head of fixed income at Ferguson Wellman Capital Management, advises against making investment changes based on election month. Instead, he emphasizes the importance of economic performance, stock market earnings, and investor sentiment in driving long-term stock market returns.
Ultimately, investors would do well to focus on these fundamental factors rather than trying to predict market movement based on the presidential election outcome.
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