The highly anticipated US presidential election is just only a month away and while some might be gazing into their crystal balls to catch a slight glimpse of a mystical prediction, there are others deploying highly sophisticated econometric & statistical models hoping to make a quick buck out of their analyses.

As verified by Google’s 20 million search results, the golden questions hover around the likes of “stocks to buy if Candidate X wins” or “stocks to buy if Candidate Y wins” in every new round of presidential campaign. It is thus interesting to look at the data and research carried out by various sources to address the timely relationship between politics and stock market behaviour.

 

A Walk Down Memory Lane

pol_presidents_graphic_03-1note: Bars represent annual total returns for large U.S. stocks.

Did You Know?

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Election Year Stock Market Returns

Over the past century, researchers have discovered that the stock market has performed better under the Democratic regime. In fact, the Dow Jones Industrial Average generated a significantly higher average returns of 82.7% under a Democratic president as compared to a 44.8% average returns under a Republican leader.

In a report put together by MFS® Investment Management called Primaries, caucuses, and elections … oh my!, you will be able to find some interesting market return data since 1990.

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S&P 500 Index Returns in U.S. Presidential Election Years

First Trust’s studies have also revealed that the average returns on the S&P 500 Index was higher when a Republican was elected than when a Democrat was elected.

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Democrats vs Republicans

Similarly, Janus Capital Group has highlighted that both Large Cap and Small Cap stocks performed better during Democratic regimes. On the other hand, long-term government bonds and T-bills have generated higher returns under Republican administrations.
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Investing in The Bigger Picture  

There are always two sides of a coin. As much as there will be stocks doing well in the event of a Trump or Clinton victory, there are also investments that could be hurt by either outcome.

In hindsight, historical research and statistics can provide useful insights on how the markets might react to the upcoming elections. However, the correlations between election cycles and the stock market gathered should not determine your investment decisions.

It is generally wise to take a long-term perspective for your investments as there are broader economic trends reshaping the global markets no matter who ends up winning the White House.  New sectors such as big data, digitalization, cloud computing and cybersecurity are at the forefront of generating opportunities and will potentially change the world, just like how the Internet has.

Sources:

https://gbr.pepperdine.edu/2010/08/presidential-elections-and-stock-market-cycles/

https://www.thebalance.com/presidential-elections-and-stock-market-returns-2388526

http://time.com/money/page/2016-presidential-election-clinton-trump-affect-finances/

https://erinarvedlund.files.wordpress.com/2012/10/mfs-election-study-20121.pdf

http://www.henrywealth.com/files/34658/Presidential%20Election%20SP%20500%20Returns%20-%20Dec%202015.pdf

http://www.fondsprofessionell.de/upload/attach/1351157602.pdf

http://www.nasdaq.com/article/how-presidential-elections-affect-the-stock-markets-cm586601

https://blogs.cfainstitute.org/investor/2016/07/29/effects-of-elections-predicting-the-markets-response-to-clinton-or-trump/

https://www.ml.com/articles/how-presidential-elections-affect-the-markets.html