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The 2020 U.S. Presidential election is now less than 10 days away, and….the countdown has renewed fears amongst investors as to the election’s potential impact on financial markets… A quick look at the data provides some interesting insights…[as to] what we can expect.
Is a Republican or Democrat President Better for the Market?
Many people think a Republican winning the election is best for markets since they would theoretically be more “business-friendly” but…historically, this has only been true for the election year, whereas Democrats appear to post better returns during their first year in office…
- One potential explanation is that markets get excited when Republicans are elected, but if nothing dramatically changes that excitement fades.
- The opposite could be said about a Democrat being elected. Markets appear to be more cautious directly following their election, but grow increasingly enthusiastic when nothing dramatically changes.
| Party of President Elected | Election Year | First Year |
|---|---|---|
| Republican Elected | 12.4% | 3.9% |
| Democrat Elected | 7.0% | 18.7% |
- It’s also interesting that Democrats have generally posted better-annualized returns during their terms in an office going all the way back to 1945.
The strongest annualized return for a single sitting President…belongs to Republican Gerald Ford with his two years stretching 1975 to 1976 (only counting full calendar years). The full data can be found below.
| Party of President | Average Annualized Return |
|---|---|
| Democrat is President | 14.3% |
| Republican is President | 9.0% |
| President | Annualized Return |
|---|---|
| Truman | 15.7% |
| Eisenhower | 14.9% |
| Kennedy | 7.6% |
| Johnson | 12.2% |
| Nixon | -3.4% |
| Ford | 30.3% |
| Carter | 11.6% |
| Reagan | 14.2% |
| HW Bush | 15.7% |
| Clinton | 17.2% |
| GW Bush | -2.9% |
| Obama | 14.4% |
| Trump | 12% |
*S&P 500 Total Return – Calendar Years of Presidency
Conclusion
What does this all mean?…[Well,] regardless of which party wins, returns tend to be positive in both the election year and first year in office….[so] it’s okay to care about politics, but we believe it’s best to not let presidential elections influence your investment decisions.
Editor’s Note: The original article by Brendan Erne has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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