INVESTING THROUGH PRESIDENTIAL ELECTION YEARS
Considerations for investors as we approach the 2020 election
It’s election season, which means nonstop media coverage of the 2020 Presidential Election, and with it, reasons why the markets may be poised for volatility. In this brief, I take a deeper dive into the implications of election season and seek to share a fresh perspective within the current political environment.
THERE ARE ALWAYS REASONS TO NOT INVEST
It seems that every day, investors are swamped with headlines, tweets, and talking heads offering reasons to not invest in the equity markets. Be it talk of tariffs, Brexit, global unrest, recent market highs or market lows, virus outbreaks or political elections – investors have always had reasons to not invest. But for investors who tune out the noise and focus on facts, history shows they’ve been well rewarded. The chart below shows that going back to 1924, markets have been positive in 74% of the years, and negative in just 26%.
DOES IT MATTER WHICH PARTY OCCUPIES THE WHITE HOUSE?
When it comes to returns, it really doesn’t appear to matter who is in the White House as both Democrat and Republican presidents have, on average, enjoyed positive returns. Why might this be? I would submit that there are a few reasons. First, both parties have—at least thus far—still promoted a capitalist market system, one which encourages individuals and companies to innovate, create, improve, and deliver their goods and services. Second, looking only at the party of the president ignores the party composition of congress. Lastly, the markets are impacted by a multitude of factors with the political environment being just one factor among many. The graph below drives home the point that, if history is any guide, markets have rewarded investors regardless of who occupies 1600 Pennsylvania Avenue.
WHAT DOES THE DATA SAY ABOUT ELECTION YEARS & MARKET RETURNS?
Also of interest is the historical returns in election years, which is perhaps of most interest to investors at the moment. Again, looking at the data, we find that election years tend to be positive on average. Specifically, going back to 1928, election year returns for the S&P 500 have averaged 11.8%. I suspect the reason for this is that in election years, little tends to happen in terms of radical policy changes, as compared to the year after elections, in which markets have averaged impressive, albeit lower returns of 9.9%.
PUTTING IT ALL TOGETHER
The market has certainly been strong lately as evidenced by this being the longest expansion in recent history, and so its natural to seek out reasons why the market is due to correct and potentially turn lower. While we don’t know where the markets will go from here, we do know where we are today—unemployment continues to be near historic lows, inflation is mild, the personal savings rate of the average American continues to climb higher, and the stock market continues to trade just a little above historic average multiples. This all suggests that there is little on the foreseeable horizon to derail a sound investment approach. And as the data shows, it is unlikely that the presidential election is going to result in an economic or market downturn. I’ll close by sharing a few words that I find myself saying to investors as they grow concerned with where the markets will go in the future: if your dollars are earmarked for a goal more than 5 years from now, then what the market does in the short-term shouldn’t be of concern. And for your dollars intended for goals within 5 years, those dollars shouldn’t be invested in the stock market. Regardless of your personal political leanings, I hope you stay positive and focused on the big picture, which from where I sit, still looks bright.
Jeff DeLarme, CFP®
Registered Principal, Financial Advisor
Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. The information in this writing has been prepared from sources believed to be reliable, but is not guaranteed by Raymond James Financial Services or DeLarme Wealth Management and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation.
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