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In any given year, a multitude of factors can impact the return experienced by an investor in the U.S. equity market. Inevitably, every four years, the same question arises:
“How will returns in the stock market this year be impacted by the presidential election?”
The potential for change in policy stances can stoke volatility in the stock market, but the assumption that U.S. presidential election years are overtly negative for the domestic equity market is incorrect based on history. In actuality, the return provided by the S&P 500 Index in election years on average is greater than the long-term average annual return provided by the index dating back to its inception. Details can be found below:
Observations:
- The U.S. equity market appreciated in 20 out of the 24 election years since 1928.
- When a Democrat was in office and the Democrats maintain control of the White House, the total return for the year averaged 14.92%.
- When a Democrat was in office and a Republican was elected, the total return for the year averaged 12.91%.
Closing thoughts:
As mentioned at the onset, a myriad of factors have the potential to drive the U.S. equity market in any given calendar year. Taking the data above in isolation would prompt one to surmise that Barack Obama’s election caused the stock market to crash in 2008. In reality, events well outside of the political arena were to blame. Election years do hold potential for volatility, especially within sectors exposed to hot button issues such as energy and health care. I am of the belief that forward return guidance can be more reliably gleaned from economic data and the health of corporate fundamentals rather than the historical results from emotionally-charged trading years.
Disclaimer:
Expressions of opinion are as of this date and are subject to change without notice. Any information provided is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation to buy, hold, or sell any security. There are limitations associated with the use of any method of securities analysis. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Every investor's situation is unique, and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Past performance does not guarantee future results. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Dividends are not guaranteed and must be approved by the company Board of Directors. Indices are included for informational purposes only; investors cannot invest directly in any index. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Blue Chip Partners, Inc. we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Image credit/ Getty Images.
