Presidential Election Years And The Stock Market
Like it or not, we’re within a year of the 2020 Presidential Election!
And with it comes the usual assortment of emotional predictions about where the country and stock market will be headed depending on who wins.
Since making emotional investment decisions is an almost sure-fired way of hurting long-term investment returns, we like to “ground” our emotions by looking at history.
First Three Years After New President
The first thing to look at is how the stock market has done after the first 3 years of a new presidency.
As you can see, returns have generally been good in the first three years of a new president. For the Trump presidency, the stock market has enjoyed its best three-year start under a new president since the 1950’s. This is notable since the stock market had already had a good run during President Obama’s term in office, recovering from the depths of the Great Recession.
Presidential Stock Market During Election
Next, we can look at how the stock market has done in Presidential election years. The table below looks at all Presidential elections since the end of World War II.
The stock market has tended to do better in election cycles where an incumbent president was running for a second term. You have to go all the way back to Truman in ’48 to find an election year where an incumbent president suffered a negative year in the stock market.
What Do Presidential Elections Tell Us About 2020 And The Stock Market?
Not a lot, actually. While we can take encouragement that the market tends to do well when an incumbent is running for re-election, we must keep in mind that the market has already had a very good run the last three years. Truman and Eisenhower enjoyed very strong markets in Years 1-3 only to see Year 4 returns peter out.
The key takeaway we’d like to leave you with is to not invest emotionally. Election years can drive emotions that cause us to make bad investment decisions. Just remember that through every election cycle – regardless of which side won – America and the stock market have powered ahead.
As the TV commercials say, “Past performance is no guarantee of future results.” But history can at least help “ground” our emotions as we head into the 2020 election cycle. Think long-term.
Wondering how this affects your future finances? Schedule a call with Financial Design Studio to discuss your portfolio today.