The 2020 U.S. Presidential election is now less than 30 days away, and with COVID still surging across the country, mail-in ballots are already being collected and tallied. But the countdown has renewed fears amongst investors as to the election’s potential impact on financial markets—a concern that tends to pop up once every four years. So what can we expect? A quick look at the data provides some interesting insights.
Stock Market Performance During Election Years: Is a Republican or Democrat President Better for the Market?
Many people think a Republican winning the election is best for markets since they would theoretically be more “business-friendly”. But is this actually true? As the table below suggests, historically this has only been true for the election year, whereas Democrats appear to post better returns during their first year in office. We believe one potential explanation is that markets get excited when Republicans are elected, but if nothing dramatically changes that excitement fades. The opposite could be said about a Democrat being elected. Markets appear to be more cautious directly following their election, but grow increasingly enthusiastic when nothing dramatically changes.
|Party of President Elected||Election Year||First Year|
It’s also interesting that Democrats have generally posted better annualized returns during their terms in office going all the way back to 1945. But the strongest annualized return for a single sitting President? That title belongs to Republican Gerald Ford with his two years stretching 1975 to 1976 (only counting full calendar years). The full data can be found below.
Should Presidential Elections Impact Your Investment Decisions?
What does this all mean? Elections are often polarizing and emotional, and each party tends to think the world will come crashing down if the opposition wins. But the reality is very little tends to change. And regardless of which party wins, returns tend to be positive in both the election year and first year in office. Said another way, it’s okay to care about politics, but we believe it’s best to not let presidential elections influence your investment decisions.
|Party of President||Average Annualized Return|
|Democrat is President||14.3%|
|Republican is President||9.0%|
*S&P 500 Total Return – Calendar Years of Presidency