Presidential Elections & The Stock Market: Is There a Correlation?
A Reminder About Emotionally Driven Investing
News outlets, opinion journalism and social media channels make it all too easy to be inundated day in and day out with information about our country's political future (especially information that is alarming or scary). This can take its toll on anyone watching or listening. You’ve already heard the predictions - “If Biden wins, the stock market is sure to tank.” Or, “If Trump wins, the stock market is sure to tank.” People everywhere (whether they’re journalists, friends & family or complete strangers) re making an argument for it either way.
As an investor, it’s important to make a conscious effort to drown out the noise and think about your personal short, medium, and long term financial goals. Can we really predict what will happen to the stock market based on who is elected? Does the party elected make a difference?
Historical Stock Market Performance During Election Years
Of course, past performance is no guarantee or indicator of future performance. But as an investor, it may interest you to see how the stock market has performed historically during and after presidential elections years. Below are the S&P 500 returns since the 2000 election:1
|
Election Year
|
Presidential Candidates
|
Performance During Election Year
|
Performance For Following Year
|
|---|---|---|---|
| 2000
|
Bush v. Gore
|
-9.10%
|
-11.89%
|
|
2004
|
Bush v. Kerry
|
+10.88% |
+4.91%
|
|
2008
|
Obama v. McCain |
-37.0%
|
+26.46%
|
|
2012
|
Obama v. Romney
|
+16.0%
|
+15.06%
|
|
2016
|
Trump v. Clinton
|
+11.96%
|
+21.83%
|
Additionally, below shows the S&P 500’s percentage of return during a president’s full term dating back to 1981. This information was gathered from YCharts and presented by Forbes:2
| President
|
Years
|
S&P 500 Return
|
|---|---|---|
| Donald J. Trump (R)
|
2017- | +43%
|
| Barack H. Obama (D) | 2009-2017
|
+182%
|
| George W. Bush (R) | 2001-2009
|
-40%
|
| Bill J. Clinton (D)
|
1993-2001
|
+210%
|
| George H.W. Bush (R)
|
1989-1993
|
+51%
|
| Ronald W. Reagan (R)
|
1981-1989
|
+117%
|
Historically speaking, there have been a number of outside factors that determine the stock market’s performance - more so than simply which party is in power. These other factors could include whether or not we’re in a bull or bear market, the business cycle, civil unrest (at home and overseas), trade wars, tax policy changes and more.
If the upcoming election has you worried about the future of your portfolio, consider this: The odds are (but not a guarantee), that the stock market will be higher in ten years. The next ten months? I have no idea. If you need money for a goal in the next 3 years, that money should not be in the market at all, no matter who is in power and the part of the election cycle we are in. If this is money you do not need for 10 years or more, what happens in the next 10 months is less important than what happens over the next ten plus years.
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