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Investment Insights: The impact of the election on the markets and your portfolio
Investment Insights

Investment Insights: The impact of the election on the markets and your portfolio

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With the presidential election only a few months away and given all the questions and opinions I receive about how one outcome or another will likely influence the markets, I thought it would be helpful to spend some time on this topic. Irrespective of my personal beliefs and viewpoint, this is intended to be a completely objective and nonpartisan article.

Although the literature suggests that the markets may tend to favor Republican or Democratic presidents over extended periods of time, discrepancies favoring one party or another can be explained by events occurring during or before their terms. A July 10, 2020 Retirement Insights article by Bob French does an excellent job of summarizing the available data. The information Mr. French provides indicates that in time periods over which one party controlled both houses of Congress and the presidency, the S&P 500 Average (which represents approximately 80 percent of the value of all domestic stocks) gained, on average, over 14.5 percent per year. In periods with Democratic presidents and in which the Republicans controlled at least one house, the S&P averaged almost 16 percent per year. With Republican presidents and the Democrats controlling at least one house the market gained about 7 percent per year. A Financial Times article from March 4, 2020 cited Nataxis Investment Managers Research for their findings that since 1976 under Democratic presidents the stock market has gained 14.3 percent per year while under Republicans presidents, 10.8 percent. But regardless of who occupies the White House we all win over time. According to French’s article, from 1926 through 2019, over the course of 23 presidential elections, the S&P has averaged over 12 percent per year.

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Over time stocks rise when economic conditions are favorable with the expectation that corporate profits will be rising. This year the coronavirus pandemic has muddied the waters. Although stocks initially plummeted when businesses and economic activity were curtailed to stem the tide of the virus, they subsequently soared because of significant monetary and fiscal support provided by governments around the world. In their role as leading economic indicators, the stock markets rose on the prospect of the economic recovery which will follow economic devastation. The rapid development of vaccines and improvements in testing and treatments have also given investors’ confidence.

Elections almost always cause uncertainty and the markets generally react unfavorably to that uncertainty and especially to the possibility of change. But over time the party of the occupant of the White House has not been determinative of the course of the markets. Far more important are the policies of that occupant, the economic context of that individual’s election and the subsequent impact of that person’s decisions on the course of the economy over time. Don’t let any candidate convince you that their policies alone will cause the markets to move higher or that the election of the other candidate will drive stocks lower. Pay attention to your portfolio. Maintain your balance and diversification and vote for the candidates of your choice.

Arthur S. Rothschild, CFP is a vice president of Landaas & Company, LLC. The opinions expressed in this column are the author’s alone and do not necessarily reflect those of Landaas & Company, LLC. Your comments or suggestions for future articles are welcome at (800) 236-1096 or by email to arothschild@landaas.com.

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