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Presidential Elections & The Stock Market: Is There a Correlation? Thumbnail

Presidential Elections & The Stock Market: Is There a Correlation?

Attacks, lies and accusations of corruption - no election year is complete without them. And while the 2020 election is proving to be plenty contentious, contention is nothing new in the world of politics. From the 1796 political match-up of Jefferson v. Adams to this year’s Biden v. Trump, mud has always been slung, accusations have always been made, and many Americans have found themselves uncertain of a future under new (or unchanged) leadership.

While Adams and Jefferson didn’t shy away from printed ads and public debates, at least one thing is vastly different about today’s political climate: 24/7 access to constituents. With social media, email blasts, phone calls, television ads, mailers, and radio announcements, today’s candidates and their associated parties have the ability to inundate Americans with their messaging.

Pair this with the fact that 2020 has been anything but ordinary (which, of course, no one needs reminded of), and you have an election year truly like no other. Whether you’ve been guilty of it yourself or you’ve seen others take part, social media channels like Twitter and Facebook make it all too easy to share damaging, misguided, or opinionated messaging. This is true in any circumstance, but it can be especially effective when these posts are about political candidates. What are the implications for investing?

 A Reminder About Emotionally Driven Investing

The problem is, being inundated day in and day out with information about our country’s political future (especially information that’s alarming or scary) can take its toll on anyone watching or listening. You’ve likely already heard predictions such as “If Biden wins, the stock market is sure to tank.” Or nearly as likely, “If Trump wins, the stock market is sure to tank.” People everywhere (whether they’re journalists or your Aunt Sally) like to make provocative arguments on both sides.

As an investor, it’s important to make a conscious effort to filter out the noise, keep an eye on your personal financial goals, and keep in regular contact with your financial advisor. He or she can offer the educated, unbiased advice you need to stay on track and avoid being whipsawed when it comes to preparing your portfolio for any potential changes in political leadership.

Historical Stock Market Performance During Election Years

Of course, past performance is no guarantee or indicator of future performance. But as an investor, it may interest you to see how the stock market has performed historically during and after presidential elections years. Below we’ve charted out the S&P 500 returns since the 2000 election: 

Election Year Presidential Candidates  Performance During Election Year  Performance For Following Year 
2000 Bush v. Gore -9.10% -11.89%
2004 Bush v. Kerry +10.88% +4.91%
2008

Obama v. McCain

-37.0% +26.46%
2012 Obama v. Romney +16.0% +15.06%
2016 Trump v. Clinton +11.96% +21.83%

Additionally, below shows the S&P 500’s percentage of return during a president’s full term dating back to 1981. This information was gathered from YCharts and presented by Forbes:2

President  Years S&P 500 Return
Donald J. Trump (R) 2017- +43%
Barack H. Obama (D) 2009-2017 +182%
George W. Bush (R) 2001-2009 -40%
Bill J. Clinton (D) 1993-2001 +210%
George H.W. Bush (R) 1989-1993 +51%
Ronald W. Reagan (R) 1981-1989 +117%

Historically speaking, there are a number of outside factors that determine the stock market’s performance more than simply which party is in power. These other factors could include the business cycle, civil unrest (at home and overseas), trade wars, tax policy changes, the timing of market peaks and troughs, and more.  Those factors likely weigh more heavily on market performance than who occupies the White House.

If the upcoming election has you worried about the future of your portfolio, take some time now to speak with your GBB financial advisor. They can provide important insights into whether your asset allocation should be adjusted and review any contingency plans you may have already put in place, plus remind you to keep your focus on the long-term!

  1. https://ycharts.com/indicators/sp_500_total_return_annual
  2. https://www.forbes.com/sites/sergeiklebnikov/2020/07/23/historical-stock-market-returns-under-every-us-president/#2046fd9efaaf

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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