With our quadrennial presidential election just a month away, we thought it might be helpful to look at actual market return data for election years throughout history to see if there’s a common theme.
So much of how each of us view the markets, particularly in election years, is governed by our world-view, instead of real information. We need to acknowledge that.
We also should understand that making financial decisions based on a single variable is rarely smart.
The key to achieving good long-term outcomes depends mostly on two inputs: first, sustaining your efforts uninterrupted over all types of conditions (including crazy times like those we are living through now), and second, to recognize the necessity to adjust your financial plans along the way based on current reality.
In this first slide, Annualized Returns During Presidential Terms, we examine the actual performance of the S&P 500 Index over each Presidential Term going back to President Hoover in 1929. The average annual return is 10.3% from 1929- 2019.
As much as we might want to, it’s difficult to identify repeatable patterns in the performance data over 23 different time- periods.
One of the additional areas of concern for many investors are the years subsequent to the election. Well, as you can see from the chart below, Returns During and After Election Years, on average market returns are positive in both election years and subsequent years.
What the broad financial markets expect in terms of election outcomes is reflected in security prices. The millions of participants in the market, in aggregate, know more than we do individually. Start there.