We are now less than a month away from election day. The two candidates are polar opposites when it comes to both their personalities and their policies. What does history tell us about the presidential election and stock market performance? In this blog post, we will examine this question.
The anticipation has been building, and next month we will be electing a president to lead our country for the next 4 years. With an impending election, we often get questions about how financial markets will respond. When helping investors answer these questions, it is often helpful to put things into a historical context.
In this short video by Dimensional, they discuss what historical data tells us about a president and ensuing stock market returns. As described in the video, it is hard to discern a pattern between who is in the White House and stock market returns. The video clip also noted that many different factors drive returns in equity markets, not just who is in the White House. Interest rates, economic data, oil prices, and even global politics can all have an impact on equity prices (among many other factors).
One thing we do know is the stock market has rewarded those who stayed invested irrespective of who is president. As this chart from BlackRock shows, $1,000 invested in the stock market in 1926 grew to $8,960,000 by the end of June 2020. Regardless of your political party, not a bad return. Keep in mind that most of the fear relating to one candidate or another is driven by the political arm of the other candidate and is not based on reasonable factors.
Finally, investors should not let their emotions get the best of them during this election season. As this chart from BlackRock points out, investors have typically built up cash in their portfolio during election years. We want to remind investors that it is nearly impossible to time the markets. Not only does it take a correct call on when to sell, but you also must decide on when to get back in. It is often the “when to buy back in” decision that paralyzes you the most. If you need help building a portfolio that can help meet your goals regardless of who is in the White House, please contact us today.