As the election approaches, many investors are wondering how the outcome might impact markets and, in turn, their portfolios. To address these concerns, we’ve taken a deep dive into historical data to see how the market has performed under different presidential administrations and during different election cycles.
Historical Market Trends by Presidential Administration
The graph below plots the S&P 500’s monthly returns since 1926, using red dashes for months when a Republican won the presidential election and blue dashes for months when a Democrat won.
One key observation from this data is that, while returns certainly vary over time, the index has shown positive monthly performance 63% of the time, with an average return of 0.97% per month. This highlights the potential premium that investors can capture by staying invested in the stock market, regardless of the political environment.
As it relates to the election, the returns in months where either party has been elected are spread out across the entire distribution, indicating there is no clear pattern in how we should expect the market to perform if a Democrat or Republican is voted into office. This is because market expectations around election outcomes are actively embedded into security prices over time. And while it is possible the market could have a positive or negative reaction to one of the candidates being elected, there is no indication based on the historical data that anyone could have certainty around which direction that would be.
Markets Have Rewarded Investors with a Long-Term Approach, Across many different Presidencies
Next, we examine how a hypothetical investment of one dollar would have grown over time under various presidencies and political parties. The chart follows the same color scheme as before, with red highlighting Republican presidencies and blue highlighting Democratic ones.
While this is a hypothetical example, it demonstrates that markets have rewarded long-term investors under a variety of different U.S. presidents. Again, there is no identifiable pattern between which political party wins and how that impacts the stock market over the next four years.
Do Markets Perform Differently in Election Years?
Lastly, we looked at how markets have historically performed during election years and the year after an election, using average calendar year returns for the S&P 500 Index and the Bloomberg U.S. Aggregate Bond Index.
Looking at this data, there has been no trend in what investors can expect when investing during an election year or the year after the election. The average returns for these periods are in line with each other and align with the average returns across all calendar years.
In Summary
As this year’s election quickly approaches, it’s crucial to keep in mind that historical data shows no consistent pattern of market performance tied to the outcome of presidential elections. The market tends to reward long-term investors who stay the course, regardless of which political party is in power. By focusing on your long-term investment goals rather than short-term political shifts, you can navigate the uncertainty of election seasons with greater confidence.
Thank you for reading, and as always, feel free to reach out with any questions.
