On Stock Markets and Presidential Elections

Written by Chris Draughon

I want to see you achieve your financial goals so I spend my time making the complicated things simple. As the Director of Financial Planning I help our clients identify their most important financial goals and develop paths to get them there on time with room to spare.

October 12, 2020

As we approach the 2020 election, the noise level from prognosticators, pollsters, and palm readers alike is increasing. The “Yeah, but what if so and so wins?”, is the main entrée on every news channel, Twitter tweet, and Facebook feed. As expected, this leads to many questions about how particular political outcomes might affect the markets and investor portfolios.

To help clients make sense of it all and remain sane, we offer the following perspective in two charts.

Below, you’ll see the stock markets returns during every Presidential administration since Herbert Hoover.  Note that regardless of a Red or Blue White House, the song remains the same. The average return on stocks for all Presidential terms from 1929 – 2019 is 10.3%.

The second chart is one of our own creation. It reflects the average return on stocks in the 12 months leading up to an election and the 12 months following it since 1992:

What can investors conclude from this? If history is any guide (and we think it is), who wins the White House matters little to the success of long-term investors who can separate their portfolios from their politics. Yes, every election comes with increased volatility leading up to and immediately following it. Markets digest information every second of every day, and prices fluctuate accordingly. And markets dislike uncertainty. But as more hard data becomes available and is factored in, the fluctuations settle down. While this election may be different in many ways, its impact on markets likely won’t be.

And another thing: Recall that stock market prices are a forward-looking reflection; an expectation of corporate profits and economic health down the road. Regardless of who wins this election, every CEO in every board room will make the same declaration – “just tell me what the new rules are (tax changes, etc.), and we’ll figure out how to grow our company for our shareholders and employees.” Until this fundamental tenet of capitalism changes, long-term investors should stay the course through election cycles, and keep the political noise out of their portfolios.

As always, we’re here if you have questions. Don’t hesitate to call.

Your First Coast Wealth Advisors Team