How Do Presidential Elections Impact Your Investments?
Elections and the Market
Hi, I'm Chris Boisjolie with Snider Financial Group, and today I wanted to address a question that's on many investors' minds: How will the presidential election affect the market and my investments? This concern is not just hypothetical; it's reflected in the investing trends we observe around election times.
Election Year Investment Trends
Since 1985, we've noticed a clear pattern: during the year before and the year of an election, investors tend to hold more cash and fewer stocks. This trend reverses in the years following an election, where we see a shift back into stocks. Despite this cautious behavior, market returns during election years have historically been quite stable.
Historical Market Performance During Elections
Let's dive into the data. The average return of the S&P 500 during election years since 1928 is about 11.3%. When we look at all years from 1928 to 2023, the average return is slightly higher at 11.7%. Notably, the S&P 500 has only finished lower in an election year twice since 1940: once in 2000 during the tech bubble, and again in 2008 during the global financial crisis. Importantly, neither of these downturns was directly caused by the election itself.
The Bigger Picture: Economy vs. Politics
The takeaway here is that the market is far more influenced by the broader economy than by who occupies the White House. Presidents often receive too much credit or blame for market performance. Historical data shows that the difference in market returns between Democratic and Republican presidencies is negligible. In fact, the difference in returns based on whether the groundhog sees its shadow on Groundhog Day is four times larger!
Understanding Correlation vs. Causation
So, as you consider your investment strategy this election season, remember: correlation does not mean causation. Be cautious when you hear politicians claim credit for stock market performance or blame their opponents for economic downturns. The market's primary drivers are much more complex and rooted in the overall economic environment rather than political leadership alone.
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