Presidential Elections & The Stock Market: Is There a Correlation?
Lies and accusations—no election year is complete without them. And while the 2020 election has proven to be one of the most contentious in recent history, this is nothing new. From the political match-up of Jefferson v. Adams to this year’s contest, mud has always been slung, accusations have always been made, and many Americans have found themselves uncertain of a future under new (or unchanged) leadership.
While Adams and Jefferson didn’t shy away from print ads and public debates, today’s political climate is vastly different. Social media, email blasts, phone calls, television, and radio give today’s candidates and their supporters 24/7 access to constituents, inundating Americans with their messaging.
Couple this with the fact that 2020 has been anything but ordinary, and you have an election year like no other.
A Reminder About Emotionally Driven Investing
Social media channels like Twitter and Facebook make it all too easy to share damaging, misguided, or biased information. Such misinformation can be especially effective when these posts are about political candidates.
Being inundated day in and day out with information about our country’s political future (especially with stories designed to be alarming or frightening) can take its toll. You’ve already heard the predictions: “If Biden wins, the stock market is sure to tank,” or “If Trump wins, the stock market is sure to tank.” It’s easy to find arguments proposing either result. Some of these views come from friends or family who may hold little credibility, but you may also hear these messages proclaimed by reputable news sources.
As an investor, it’s essential to make a conscious effort to drown out the noise, think about your personal financial goals, and keep in regular contact with your investment advisor. He or she can offer the informed, unbiased advice you need to stay on track and remain unswayed by emotional manipulation targeted at changing your vote.
Historical Stock Market Performance During Election Years
Of course, you know that past performance is no guarantee or indicator of future results. But as an investor, you should know how the stock market has performed during and after presidential election years. Take a look at the returns of the S&P 500 over the last five presidential elections.1
Performance During Election Year
Performance For Following Year
Bush v. Gore
Bush v. Kerry
Obama v. McCain
Obama v. Romney
Trump v. Clinton
Consider also the S&P 500’s performance during a president’s full term dating back to 1981.2
S&P 500 Return
Donald J. Trump (R)
Barack H. Obama (D)
George W. Bush (R)
Bill J. Clinton (D)
George H.W. Bush (R)
Ronald W. Reagan (R)
Historically speaking, many outside factors have determined the stock market’s performance, not merely which political party is in power. These other factors could include whether we’re already in a bull or bear market, the business cycle, civil unrest (at home and overseas), trade wars, tax policy changes, and more.
As of this article’s writing, we don’t know who will win; it is possible that we still won’t know for a few days or weeks. Even once it is clear which party will take charge in January, we won’t know what impact their policies will have on the stock market.
Uncertainty about the election could create some major shifts to the market over the next few days, but we urge you not to make investment changes based on these short-term changes. As always, your asset allocation should be dictated by your situation and need and ability to take on risk, not external factors. If you have questions about your situation, we encourage you to consult your financial advisor.
Be sure to check out our most recent video, The Perfume and the Shoes - Britta Koepf, Practical Financial Planning.
2. https://www.forbes.com/sites/sergeiklebnikov/2020/07/23/historical-stock-market-returns-under-every-us-president/#2046fd9efaaf. Forbes.com, using data from Ycharts.