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.
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.
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.
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.
Craig Birk, CFP®
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