Market Outlook: What to Expect After Election Day

in Market Commentary by

As Election Day 2016 gets closer, media focus has turned from which candidate has the best personal jabs to who is actually fit to take the Oval Office. In the past few weeks, Hillary Clinton’s performance in each of the three debates all but tanked Donald Trump’s campaign. Following growing concerns over whether Trump’s tax plan will actually grow the economy as well as allegations of sexual assault, Clinton has solidified a 12 point lead in the polls according to CNN.

But this isn’t the first time presidential elections have thrown people into a World Cup style season of entertainment and fierce debate. Obama v. Romney, Bush v. Gore, anyone? It won’t be the last either. With economic growth, international trade policies, healthcare, and student debt all heavy on Americans’ minds, it’s an important election that will have significant policy implications for years to come.

Election Day Results

According to our analysis, regardless of whoever wins, there will likely be a spike in short term volatility around Election Day, but we urge investors not to let emotions dictate investment decisions. We’ve already begun to see volatility following last Friday’s news that the FBI is reopening Clinton’s email investigation. The market dipped nearly 1% on Friday, and although it has since recovered, this is the first of what we expect to be several small market reactions to the presidential election.

However, it’s important to note that the market isn’t concerned about who wins, individual investors are. At this point, it would be a big surprise if Trump wins. If he does we could expect a knee-jerk reaction downward because it would bring greater uncertainty. We don’t have a directional forecast for the remainder of the year, but for those with a longer time horizon we don’t think the election should be a reason to wait on the sidelines and the market seems to be sending the same signals.

Market (Un)bias

However – and that’s a big however – by analyzing the market long-term we aren’t able to say definitively that it has a preference for a particular candidate, red or blue. More importantly, regardless of whether we’ll be soon saying Madam President or not, neither candidate’s win impacts our long-term asset class risk and return assumptions. In fact, the charts below show as far back as 1945 how the markets have performed under both Republican and Democrat presidents, neither presenting a strong enough correlation to dictate how you should arrange your portfolio.

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Historically, stocks do a little better in election years when a Republican wins the election and much better in the first year of a new term when a Democrat occupies the White House. This is interesting, but feels more like noise to us than anything actionable. What is clear is that stocks generally do well regardless of party. If you think either party is disastrous to the economy or the market, there is 70 years of evidence saying otherwise.

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Better Than Brexit

The next few weeks show all the signs of being more exciting than Brexit. As the largest economy in the world, our election is sure to have an impact on investors. Many are still on the sidelines waiting for an outcome, and it wouldn’t be shocking to see the market make them regret waiting it out. Never a dull moment – stay tuned for more in depth analysis in our weekly Friday Market Recaps.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

10 comments

  1. Fred Wagner

    This article is so biased and has no place at all at Personal Capital. Using suspect polls and obviously watching different debates than I did. No mention at all of the corrupt Clinton machine including the pay for play Foundation. There is no place IMHO in trying to influence votes from Personal Capital. I had already pulled my money out from your management and ever so glad that I did.

    Reply
  2. J. Clay Hall

    One would think, in thoughtful reflection, that a more proper and meaningful analysis might be found in correlating the actual economic and trade policies of the past presidents vs. their party affiliation. I note that there is no note stating that the amounts contained (dollars) are all “same year dollars” and that inflation looks to be ignored. In truth, I suspect that stock market performance has little to do with the political party to which an administration is affiliated and much to do with the actual economic “peformance” of the policies they espouse. If we are to take as face value that Gerald R. Ford was a boon to the stock market in his short years in office, I suspect that we would be missing a bit. I guess what I am trying to say here is that the conclusion reached is the correct one, but the data presented, on its face value, seems to support the notion that the Democrats have been far more friendly to business than Republicans. That flies in the face of logic, I suspect. No doubt, as well, there is a lag of years during the changes of the watch at the U.S. top. It may well be that the next administration needs to live with, and deal with, the sins/good deeds of the one gone afore. The efficacy of legislative/excutive controls of the economy are hardly efficient, timely or strong–they are inefficient, slow and weak–even at their best. I am facinated with the idea of lowering corporate taxes to 15% as per the stated intent of Mr. Trump. What all that freed up capital will do to us companies would be well worth seeing–hopefully!

    Reply
  3. Mark Miller

    I am sorry that I ever saw this article from you and now I feel that you have a Dem leaning as most institutions. There are large contrasts between the candidates on how they would affect the market and although Trump would have an initial upset, the long term upside would be giant compared to what HRC would do. Unless the House leadership took charge like they did during her husband’s terms. Either Way, you lost me and yes, I know you do not care.

    Reply
    • Ed

      Biased reading much? You could totally read this text as democrat leaning or as Republican leaning. You’re only showing your personal bias and lack of understanding of understanding of basic statistics. I’m sure you also don’t believe in man-made global warming based on your conclusions.

      Reply
  4. Jeremy

    Concur with Mark M.

    Reply
  5. Tom

    all will go well in the new year no matter who wins.

    Reply
  6. Juan E. DeFortuny

    To me it sounds like a very leftist political point of view, Mr. Birk. Like Brexit, Mr. Trump will give us all a big big surprise and, certainly, will win in a landslide. And markets will do much better than with Mr. Obama. Tu put this Nation in the hands of a non trustable person like HRC and all the corruption attached to her would be suicidal. Anyway… God help us and USA.

    Reply
  7. patrick

    If we don’t get this runaway national debt under control, investments will not mean much as the county as a whole will be devastated and the politicians don’t give a dam.

    Reply
    • Anonymous

      right on!

      Reply
  8. Anonymous

    So, in Lee County Florida there are more Undeclared than Democrats and I am Undeclared. I don’t believe in parties because I think that divides the nation. I support the second amendment, yet I traded my gun for a chainsaw years ago. I am fiscally conservative but socially liberal. My dad was wounded on Omaha beach. I respect the military. I contribute to veterans charities and wave the flag. I am your neighbor.

    I don’t like either party yet I am voting Democratic to minimize risk….of a lot of things.

    Reply

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