It’s not uncommon for investors to believe that because it's an election year, the stock market must be in for a wild ride. Even more, some investors suggest that if the party they favor wins the election, it's going to be good for the markets, but if the other party wins, it's going to tank them.
I'm not going to pretend to be able to predict the future today but looking back at almost 100 years of data can certainly be helpful in making informed decisions with our money and our investments. Or, at the very least, help to reinforce our philosophy and approach to investing.
If we look at the US stock market performance by election cycle, over the past 92 years, the S&P 500 Index has performed positively 73% of the time and has averaged a yearly total return of 11.54%!
Let’s dive into the data.
Since 1928, as far back as this data set goes, we've had 24 election years. The first election year in 1928 was Hoover vs Smith, and the most recent, of course, was Trump/Biden in 2020.
Believe it or not, out of these 24 election years going all the way back to 1928, the U.S. stock market only experienced a negative return during four of them. Said another way, going back to 1928, the U.S. stock market has produced positive returns during an election year 83% of the time. 83% of the time! The worst performing year was Obama/McCain in 2008 (not surprising given that we were in the middle of the Great Financial Crises at that time) resulting in a negative 37% for U.S stocks that year. The best performing year being Hoover vs Smith in 1928 when the S&P 500 produced a positive return of 44%, only to be followed by the Great Depression.
Nobody knows with any accuracy how stocks will perform based on the next president, although many will make predictions that won't come true as we have seen in the last two elections.
To illustrate this long-term perspective, let's zoom out and compare how the S&P500 has performed under each president dating back to 1926.
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Even with all the bumps in the road along the way, you can see on average the stock market has gone up and rewarded investors regardless of who held presidency.
It's also true that every president will experience a down market. Especially since on average stocks are down one out of every four years.
If we’re looking for any reliable trend in the data outside of long-term investors benefitting from ignoring short-term noise, it’s that the market likes when no single political party has too much control or sway, hence why we see stronger historical stock market performance when Congress is split.
Markets tend to like checks and balances.
It’s not fun or exciting, but the truth is we truly don’t know what the market will deliver this year, the next four years, or even the next decade. Even with the election results in our hands, predicting the future is just about impossible.
And, as always, yes, even those who are in retirement have a long-term financial plan to commit to and protect. You might spend more time in retirement than as a working professional, and you need your money and investments to be working for you properly over the next 20, 30, 40 years to combat inflation and generate a reliable retirement paycheck.
