Market Performance
in a Presidential Election Year
Time to read: 3 min
It’s fair to say that, for many Americans, a presidential election is a high-stress situation. From concerns over social issues, domestic and foreign policy, healthcare, and more, it’s understandable that many feel there is a great deal at stake.
When you add in the 24-hour media cycle, vastly opposing ideologies, and a nominee being replaced closer to the election than any other time in history, the future may seem more uncertain than ever before.
A chief concern for most is the impact the election will have on the economy. Even in a relatively normal election cycle, people naturally wonder, and worry, about how the election will impact the stock market, as well as their personal finances.
While we can’t predict the future, past trends are often a great indicator of future market conditions. Keep reading to learn more about what to expect this November.
Long-Term Impacts
Between news coverage, deeply polarizing views, and the uncertainty that an election year brings, it’s easy to assume that the volatility of an election year would have a significant, long-term impact on the markets. However, historically speaking, that simply isn’t the case.
It’s very common to see short-term changes in the stock market immediately before and after an election. In the months that lead up to the election, the markets are generally higher, but in six of the ten most recent elections, stocks declined immediately following the first Tuesday of November.
However, this drop tends to be very short lived. By 60 days after the election, the stock market has usually returned to its normal activity.
Long-term, the initial drop is even less noticeable. In the past 40 years, there has only been one instance when market returns remained negative a full year after the election took place. As this was in 2000, the failure of the market to return to positive returns is largely attributed to the tech bubble bursting, rather than the election.
Positive Performance.
In the 24 elections since the S&P 500 Index began, the market ended the year with a positive performance 83% of the time, or in 20 of those years.
In the four years where the S&P 500 Index experienced a negative performance, there is a clear reason that cannot be attributed to the election. 2008 and 2000 were heavily influenced by the bursts of the housing and dot.com bubbles respectively. Meanwhile, the 1940 and 1932 elections both took place during the Great Depression. These trends show that, outside of circumstances unrelated to the election, election years do not result in the markets ending the year with a negative performance.
Comparing Economic Growth.
While the S&P 500 Index tends to end election years with a positive performance, we have found that annual returns during election years are marginally lower than during non-election years.
Over the past 96 years, the average annual return is 11.5%. However, when election years are isolated, the annual average return is 11%. This could be the result of the stock market still returning to normal following the immediate post-election decline, or a variety of non-election related factors, but it is worth noting that election years do tend to see slightly lower average annual returns that non-election years.
Additionally, when the newly elected president was a democrat, average return was 11.24%, while, in years where the newly elected president was a republican, the average return was 15.3%.
It is easy to panic about any factor that may negatively impact the markets, and your personal finances along with it. However, as Tuesday, November 5th approaches, rest assured that this election cycle is unlikely to have a significant long-term impact.
This blog is for informational purposes. Certain information contained herein (including any forward-looking statements and economic and market information) has been obtained from published sources and/or prepared by third parties and in certain cases has not been updated through the date hereof. While such sources are believed to be reliable, The Tranel Group does not assume any responsibility for the accuracy or completeness of such information. The Tranel Group does not undertake any obligation to update the information contained herein as of any future date.