As summer rapidly approaches, our thoughts inevitably turn to warm weather, lakes and beaches, summer camps, and… elections. Yes, that.
Former President Trump suggested that our stock market would collapse if Biden was re-elected (a claim he also made during the 2020 election). President Joe Biden has claimed that our country now has the strongest economy in the world. Given these two conflicting opinions, what is his best guess about the stock market’s behavior during and after the election?
In my column, I often hear the phrase “It depends.” Not this time. Because this answer is much easier and there is nearly 100 years of data to support my answer. On average, markets will be perfectly fine regardless of who is elected as the next U.S. president. The same story applies no matter who ends up controlling the Senate or House of Representatives. On average, the market will do well.
How can we predict the future? I can not do it. It is impossible to accurately predict whether tomorrow’s market will go up or down. I’m not going to predict whether the market is going to go up 10%, up 25% or down 20% this year. That’s not possible. Be very careful if someone tries to tell you they know. But looking back at history, there is strong evidence supporting the idea that stock market performance is not very closely related to whether you choose a Democrat or a Republican. There are many factors that determine stock market performance, and the president, or the party that controls Congress, is at best only one of many factors.
First, let’s take a look at how the market has performed during past election years. According to Morningstar, the S&P 500 index has fallen in only four of his 23 election years since 1928. In these 23 election years his average return was more than 11%. This is a strong return that most investors would aspire to.
Now let’s take a look at how the market would fare during an actual presidential term. Only twice in the last 100 years has the S&P 500 ended lower than it was at the end of his presidential term. It happened to Herbert Hoover (in the Great Depression) and George W. Bush (elected during the dot-com bust, then 9/11, then assumed office at the beginning of the mortgage and banking crisis). Presidents over the past 100 years have experienced average annual returns of nearly 10% as the market rose during their terms. This includes periods of great disruption such as World War II, the Korean War, Vietnam, the high inflation of the 70s, the oil crisis, the Gulf War, COVID-19, and many others.
In other words, don’t stress about investing in the upcoming election. There is no crystal ball to predict what will happen next year or even tomorrow. Joe Biden has already bucked the consensus predictions of experts that the economy will fall into recession in 2022 and 2023. No such recession occurred and the market soared. And Donald Trump has already led the market’s strong growth for four years.
To avoid stress in the run-up to the election, make sure you invest in a strong portfolio that makes sense over the long term. If you are unsure, please consult your financial advisor. It’s not unreasonable to think that there can be significant volatility around elections, but based on years of market experience, your investments are likely to be successful if you’re in the market.
If you choose to invest in any way this election year, invest wisely and invest well.
Larry Sidney is an investment advisor principal based in Zephyr Cove. Information can be found at https://palisadeinvestments.com/. Or call 775-299-4600 x702. This is not a solicitation to buy or sell securities. Clients may hold positions mentioned in this article. Past performance does not guarantee future results. Please consult your financial advisor before purchasing any securities.
