This has certainly been a year for the ages and at times has felt like 2 or 3 years have already passed in 2020. However, life continues to move along, albeit in many different ways then we are used to, but we will still have a presidential election on November 3rd, 2020.
This will be my 4th presidential election year as a financial advisor since starting in 2006. From my experience Presidential election years in particular seem to fuel anxiety around who the next sitting President will be, and what that might mean for the stock market and economy. Many pundits will make a whole host of sweeping statements about how picking their team will lead to all of the good things happening, but picking the other team will lead to all the bad things happening. It seems that these types of questions and concerns seem to be coming up a little sooner for this particular election. So we thought it would be helpful to provide some historical perspective and offer our thoughts moving forward.
Looking back on history we have had a Republican president for 46 years, and a Democratic president for 48 years. The average annual return for the S&P 500 when we had a Republican President was 9.12%, and 14.94% while we had a Democratic President. One thing to note is that Herbert Hoover took office at the start of the great depression and had an average annual return of -27.19% during his term.1 These 4 years overwhelmingly contributed to the deviation between the two political parties’ average returns.
The way to interpret these results is simply that Democratic Presidents have presided over periods when the world has done better relative to expectations than the world did when Republican Presidents were in office, and nothing more than that. Believe it or not, who sits in the office as the President does not have as much influence on the stock market and economy as one might think. Jeff Saut, the author of Saut Strategy and market observer for over 50 years was recently quoted as saying, “Presidents don’t make markets. Market’s make Presidents.” Often times, Presidents have large campaign promises with sweeping changes, but most of the time those initiatives stall out in congress and never make it to become actual law.
Biden Headlines Similar to Trump’s 4 Years Ago
If you remember back to just 4 year ago when there was a heated election between Hillary Clinton and Donald Trump, many were extremely concerned about who would take office. To recall, here were just a few headlines that I pulled up from right before the election of 2016, all from major media outlets:
“The stock market could crash if Donald Trump is elected president"
- Published: Nov. 1, 2016 by Marketwatch
“Economists: A Trump win would tank the markets”
- Published: Oct. 21, 2016 by Politico
“A Trump win would sink stocks. What about Clinton?”
- Published: Oct. 24, 2016 by CNN Money
“Trump win would cause immediate stock drop”
- Published: Nov. 4, 2016 by Citigroup
The night that President Trump was elected the stock market did go down…a lot overnight, only to rebound and finish in positive territory the very next day after the election! And it was off to the races from there with the stock market averaging roughly 15% annually since then to the time of this writing.2 Looking back its easy to say yeah but I knew this or that and hindsight is always 20/20. These same headlines are going to dominate for BOTH sides of the political isle to help benefit their particular candidate. You can find a headline or opinion out there to fuel your own beliefs, but the fact of the matter is that it doesn’t matter much who is actually in office as it relates to the stock market as they don’t have as much control over the market and economy as one might think. Remember, “Presidents don’t make markets. Market’s make Presidents.”
Our Thoughts Looking Forward
The reality of the situation is that we have been on a bull market run since stocks bottomed on March 9th, 2009 and it’s our belief that we still have years left for this to go, regardless of which political party takes office. To further back our belief there was this recent excerpt from an article by the astute King Report:
“I think [the market] is telling us stocks are about to go crazy to the upside, once the
uncertain energy cloud lifts towards the end of this year. This haze appears to be corresponding to the
looming Presidential election, but that is just a coincidence. The timing on what I’m looking at exists
completely outside politics, so there is no correlation with that – although of course in retrospect it will
look “obvious” that the election outcome was the thing that unleashed a massive bull market.
I’m saying that the outcome of the election won’t matter either way. All it will do is provide the narrative
for the various spin doctors to blabber on about after the fact, after the markets have taken off to the
upside without even a glance back. Depending on your particular political bent, I’m sure you can craft a
narrative to your liking right now to explain a big rally starting in mid-November.”
Our objective here is not to sway your political opinion one way or the other. Rather we are trying to provide you with perspective, and reinforce the fact that you should not be looking to make drastic changes to your portfolios because of a particular political party taking office. Keeping a long term perspective is always key as an investor (not trader!) and this time is no different. Yes there will be volatility, especially during election years, but trying to time investments around an election (or any other event for that matter) is almost always a losing proposition. We watch our SA Piggush investment models very closely and will continue to make changes to them when we see fit in order to take advantage of certain asset classes while keeping a diversified mix to help minimize risk.
Bob French, CFA from McLean
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All
performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.