Presidential Elections & Market Performance
Who is going to be the next president, and what will that mean for investors?
Well, the answer to the first part of that question remains to be seen. Hopefully we will know sometime on the evening of November 3, but we really aren’t even sure of that.
Regarding the second part of that question, we thought it would be helpful to look back at history. While history does not always repeat itself, it can provide some perspective.
What are some of the things we do know about investors and politics? We wrote in a newsletter several years ago about how investors’ political affiliations affect their investment strategy. It was a poll that had been conducted for years that asked investors what political party they supported and what their stock allocations were as a percentage of their portfolios. What the survey found was that investors who identified as Democrats were less invested in the stock market during Republican administrations and Republicans were less invested in the stock market during Democratic administrations.
Was it a good idea to let their political leanings influence their investment strategy? The chart below does not have any political leanings- it is just shows how the stock market has performed under various administrations.
And then there is Congress. How have markets performed under Republican and Democratic Congresses, and period of time when Congress is mixed? The chart below reflects the performance under those various Congressional scenarios.
Lastly, how do markets do during Presidential election years and the subsequent year?
Long story short- it is very difficult to identify systematic return patterns that investors could use to improve their results. On average, market returns have been positive in both election years and the following year.
And remember, market are always forward looking- which is why there always seems to be a disconnect between current economic conditions and market performance. And market participants look at current polls, so market expectations are already embedded with anticipated election outcomes. But that does not mean the expectations are always right- just look at what happened in 2016.
Warren Buffet says that he spends no time trying to predict the unpredictable when making long term investment decisions. And one of those unpredictable events are election outcomes.
I think that is wise advice. We are not investing in Presidents or candidates. We are investing (primarily via mutual funds) in the management teams of companies like Microsoft, Home Depot, Johnson and Johnson, Apple, Google, Disney, Coke, Visa etc. These management teams are focused on new products, new markets and growing profits that we as fellow owners participate in.
One of my favorite Buffet quotes is “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” This comes as great relief to us as we do not have to be smarter than everyone else to be successful. But being disciplined, which can be especially hard during big market moves both up and down, is something that we do implement.
As always, thank you for the trust and confidence you have placed in us. And please don’t hesitate to call us with any thoughts, questions or concerns.
Disclaimer: Please include: The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Beach Foster and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.