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How Will the Presidential Election Impact the Stock Market?

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
Republican Elected 12.4% 3.9%
Democrat Elected 7.0% 18.7%

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%

President Annualized Return
Truman 15.7%
Eisenhower 14.9%
Kennedy 7.6%
Johnson 12.2%
Nixon -3.4%
Ford 30.3%
Carter 11.6%
Reagan 14.2%
HW Bush 15.7%
Clinton 17.2%
GW Bush -2.9%
Obama 14.4%
Trump 12%

*S&P 500 Total Return – Calendar Years of Presidency

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Brendan Erne serves as the Director of Portfolio Management at Personal Capital. After several years as an equity analyst covering the technology and communication sectors, he joined Personal Capital in 2011, just before its official launch to the public. He helped create and manage the firm’s investment portfolios and build out the broader research team. He also co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.
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