As we are four months away from the Presidential election, our financial firm is starting to get questions about how the stock market will perform during an election year. Without a reliable crystal ball, the best we can do is provide historical data points and context. While this investment return information is interesting and can make for lively cocktail party conversation, it should never be used to predict your personal portfolio performance.
History
First, the main issue with using historical data points when discussing the presidential election and stock market performance is there are so few data points to begin with. The S&P 500 index is the most common index used in providing U.S. stock market analysis, and it began in 1957. Since it began, there have been 16 presidential elections, not counting the upcoming election. Only having 16 data periods to study makes it incredibly difficult to draw any meaningful, statistically significant conclusions. However, we would like to share more interesting data points so you can view this in light of all the news stories between now and November 5th.
Trump vs Biden
There are only two data points for Trump and Biden (2016 & 2020), but they are positive for investors. The day after the election for both presidents was strong for the stock market, with the S&P 500 up 1.11% the day following President Trump's win in 2016 and 2.20% the day following President Biden's win in 2020. If you look further out, the markets were up six months later, posting a return of 6.16% for the six months after President Trump's win and 14.33% for the six months following President Biden's win. Again, these are only two data periods, but they were quite positive for investors. However, who wins the White House is not as impactful as the economic environment during their tenure.
All Presidents
We just discussed returns after the past two elections. How about the market's performance with all Presidents since 1957? The data below is from the S&P 500 and YCharts and covers the S&P 500's performance for each President's tenure of either four or eight years.
- Kennedy: +19.5%
- Johnson: +46.6%
- Nixon: -19.8%
- Ford: +28.4%
- Carter: +30.5%
- Reagan: +117.9%
- HW Bush: +51.8%
- Clinton: +209.8%
- Bush: -36.7%
- Obama: +181.1%
- Trump: +67.3%
- Biden: +43.7% as of June 28, 2024
As you can see, of the past twelve presidents, ten saw positive stock market gains during their tenure in office. However, understand that the market can be volatile and there would have been periods of negative returns during any presidential term. Again, many factors impact the return of the S&P 500. This would include wars, pandemics, and geopolitical circumstances that are not always in control of the president.
Should you change your portfolio?
As shown above, the data is positive for investors during most presidencies, and we've seen how the market has performed for today’s two assumed candidates for this election cycle. So, it is hard to point to any stock market data and/or election to give investors a reason to be concerned.
There is nothing here to suggest you change your portfolio due to the upcoming election. However, you should always review your investments to ensure your portfolio is in line with your overall goals.
We have had several years of strong stock market returns. It is, therefore, likely that your portfolio holds a higher percentage of stocks than it has historically due to the market's strong performance. If this means your portfolio now contains more risk that you are comfortable with, then selling and reinvesting in fixed income vehicles or other asset classes would be appropriate. There are numerous reasons why you may consider making a change to your portfolio, but concern over the upcoming election should not be one of them.
Summary
There will be endless headlines coming soon about how you should worry about your portfolio because of the coming election. The data doesn't necessarily support that level of concern; however, using the coming election to analyze your portfolio based on your situation is a good idea. Instead of using politics to make investment changes, focus on your overall investment strategy and make changes accordingly. You'll likely end up happier focusing on the latter than the former.
Schedule a Consultation
We have helped our clients answer these questions and more. If you want a clear understanding of your financial future, and need help making changes to reach your goals, schedule a consultation and we can get started.
