Besides interest rates and The Federal Reserve, stock market volatility is going to be heavily influenced by the presidential election this November. And it’s not going to wait until Fall. Headlines are going to be filled with polls, debates, and trials from now until election day (and beyond, I’m sure). I have always felt that elections are just short-term catalysts, both positive and negative, for stocks and Presidents don’t really have an affect on stock prices. It will still hold true this year. However, I suspect there will be much more volatility due to politics than normal, especially with addition of the Trump trials to the landscape.
So, let’s take a look at how markets have performed historically in a presidential election year:
- Historically, the S&P 500 has averaged a 7% gain during U.S. presidential election years since 1952. This is lower than the average annual gain of around 10% but still positive.
- Re-election years: Markets tend to perform better in re-election years (such as this year), with the S&P 500 averaging a 12.2% gain since 1952. This could be due to an incumbent president’s focus on maintaining stability and avoiding major policy changes.
- Party control: The party in control of Congress doesn’t seem to have a significant impact on market performance. However, major policy changes proposed by either party can cause uncertainty and volatility.
- Economic conditions: The overall health of the economy has a much stronger influence on the stock market than the election itself. Strong economic growth and low inflation are typically associated with positive market returns.
Historically, stocks perform the best when an incumbent president wins and the opposite party controls at least one section of Congress, either the House of Representatives or the Senate. But this shouldn’t influence your investment strategy for the long term. Holding high-quality, well-run companies will serve you well regardless of the political climate.
Please comment or send an email if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
