The Impact of Politics on the Markets
Global financial turmoil, geopolitical uncertainty and heated political rhetoric at home have provoked more consternation about our country and our economy’s future than any in recent memory. In light of these concerns, it’s natural to wonder: What impact might presidential electioneering and administration policies have on the markets?
We took a look at election years and those following them from 1901 up through the last presidential cycle for the Dow Jones Industrial Average and the S&P 500 index (1929 on) to see how the markets performed in various situations. The good news for investors is that in pretty much every scenario we analyzed, the market showed gains on average. However, we’d caution against using any of the “statistics” that follow to make changes in your portfolio—the sample size is simply too small to justify changing a disciplined investment plan.
Note: Chart shows average calendar-year price returns from 1901 through 2013 for the Dow Jones Industrial Average (DJIA) and from 1929 through 2013 for the S&P 500 Index.
Sources: Morningstar Direct; Analysis: Adviser Investments.
The chart shows that one could make a convincing argument for either party based on which data points are cherry-picked. Need a case for voting for a Democrat? When a GOP candidate succeeds a Democrat president, the S&P 500 has lost 10.2% and the Dow Jones Industrial Average (DJIA) has lost 4.6% on average in the calendar year following the election. Want to make the case for a Republican president? During the election year leading up to a Republican victory, the S&P 500 has averaged a gain of 8.5% and the DJIA has seen a 13.0% return.
Markets have returned much less, on average, in the year preceding a win by Democrats, with average annual gains of 3.3% and 2.1% for the S&P 500 and DJIA, respectively. However, in the year following an incumbent party’s victory, the S&P 500 has risen 6.6% and the DJIA has advanced 6.2% on average, compared to average returns of 5.3% and 5.9% for the indexes with a change of parties.
As you can see from this sampling and the above chart, political parties on both sides of the aisle can find market-return data as proof that their candidate is the best for investors going forward. However, as we mentioned above, markets tend to rise regardless of which party prevails.
Here at Adviser Investments, we’ve always taken a long-term investment view. Investors will have their personal opinions, but making investment decisions based on ideological or emotional beliefs about one presidential candidate or election cycle rather than on the underlying economic and market cycles is not the recipe for sustainable wealth-building.
To read more about the impact of political rhetoric on Wall Street and how the election may affect your portfolio, we encourage you to read our exclusive Special Report, Focus on Market Cycles, Not Election Cycles
. This report compares more than a century of U.S. stockA financial instrument giving the holder a proportion of the ownership and earnings of a company.
market returns during Democratic and Republican presidential terms and puts them into an investment context. Click here to download it today
About Adviser Investments
Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the fifth consecutive year, Adviser Investments was named to Barron’s list of the top 100 independent financial advisers nationwide and its list of the top advisory firms in Massachusetts in 2017. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015 and 2016.
For more information, please visit www.adviserinvestments.com or call 800-492-6868.
Disclaimer: This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
The Barron’s rankings consider factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. This award does not consider client experience and is not indicative of future performance.
Editors at the Financial Times bestowed “elite” status on 300 firms in the U.S., as determined by assets under management, asset growth, longevity, compliance record, industry certifications and online accessibility.
© 2018 Adviser Investments, LLC. All Rights Reserved.