You may feel strongly about the Republicans or the Democrats when it comes to your politics, but when it comes to your portfolio, it doesn’t really matter much which party wins the White House. Conventional wisdom might suggest that Republicans, who are supposedly more business-friendly than the Democrats, would be more beneficial for your stock holdings. In fact, looking back to 1900, Democrats have been slightly better for stocks, with the Dow up an average of nearly 9% annually when the Democrats are in control, compared with nearly 6% per year during Republican administrations. Once you factor in normal variation in stock market returns, there’s no difference between Republican and Democratic administrations from a stock market perspective. *Source: BlackRock
If the election results cannot predict stock market returns, can the stock market predict who will be in the White House for the next four years? If the stock market (S&P 500) is up in the three months leading up to the election, put your money on the incumbent party. Losses over those three months tend to usher in a new party.
The statistics are compelling. Since 1928 there have been 22 presidential elections. Fourteen of those elections were preceded by gains in the three months prior to the election and eight were preceded by losses in the three months prior to the election. In 12 of those 14 instances where there were gains, the incumbent (or the incumbent party) won the White House. In 7 of those 8 instances where there were losses, incumbents were sent packing. Exceptions to this correlation occurred in 1956, 1968 and 1980. According to these statistics, the S&P 500 has an 86.4% success rate in forecasting the election. Here comes the disclosure: “Past election results predicted by the S&P 500 do not guarantee future elections results”; more so than ever in this 2016 presidential race. *Source: Chicago Tribune
With that being said, here are some patterns that have emerged over the years:
Year of the Presidential Cycle
The average annual gain for the S&P 500 Average has varied depending on the year of the presidential cycle. (1926-2010)
Year 1: +8.1%
Year 2: +8.9%
Year 3: +19.3%
Year 4: +10.9%
1st year of a President’s term:
S&P 500 is positive 52% of the time
S&P 500 is negative 48% of the time
2nd year of a President’s term:
S&P 500 is positive 64% of the time
S&P 500 is negative 36% of the time
3rd year of a President’s term:
S&P 500 is positive 90% of the time
S&P 500 is negative 10% of the time
4th year of a President’s term:
S&P 500 is positive 81% of the time
S&P 500 is negative 19% of the time
*Source: Federated Investor
Election Years are Generally Positive Ones – Since 1928, the market (S&P 500) has only been down four times in an election year:
1932 (Roosevelt v. Hoover): -8.2%
1940 (Roosevelt v. Willkie): -9.8%
2000 (Bush v. Gore): -9.1%
2008 (Obama v. McCain): -37%. (2)
As of April 21, 2016, the S&P 500 is up 2.29%. (4)
That means the market has only been down in 4 of 22 election years since 1928, or less than 20% of the time. *Source: Federated Investor
I’ll leave you with some cocktail party fun facts about our U.S. Presidential Elections:
- Victoria Woodhull became the first woman to run for President in 1872.
- James Buchanan is the only bachelor to be elected president.
- Ronald Reagan is the only divorced man to be elected president.
- Martin Van Buren was the first natural-born American to become president in 1837. Each of the seven previous presidents were born as British subjects.
– The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.