Analyst Brad Hoppmann examines the history of market returns in presidential election years, and what they could mean for investors this time around.
This is an election year like no other, right?
Well, yes if you are talking about things in terms of bizarre rhetoric and intense mudslinging featuring two of the most-disliked presidential candidates ever.
Yet beyond the bombast and backbiting, there are real differences between the candidates. And we all know that those differences are going to prompt different reactions in the financial markets.
Now, historically speaking, markets have actually done pretty well during presidential election years.
An interesting infographic from the folks at the Visual Capitalist presented a long history of performance on the S&P 500 Index.
According to the data, the market has performed well in election years. The S&P 500 ended up in positive territory 82% of the time.
As of Friday’s close, the S&P 500 has posted a year-to-date gain of 4.36%. That’s not a tremendous gain, but it’s also relatively strong given the uncertainty of the pending election.
Yet that data doesn’t begin to tell the whole story.
Last week my colleague Nilus Mattive took a look at what a new president means for stocks, and that is regardless of which candidate wins.
What Nilus discovered after crunching the numbers on nearly 22 full presidential terms (plus one extra year under Calvin Coolidge) was telling.
First, he found that until President Obama took office, the first year of a presidential term was generally the worst for stocks … with a typical gain of just 4.1%.
Yet because 2008 bucked the trend so hard — with a 23.4% surge — it brought up the entire cycle average enough to move into second place.
That analysis isn’t reflected if you just look at the raw data.
Second, Nilus notes that the third year of a presidential term remains the best one for stocks by a huge margin, with an average gain of 12.8%. Of course, we’re far from a third year in the cycle, so investors can’t count on the calendar for any help here.
As for this year, there is just no denying that the perceived toxicity of the choice we face has caused many investors to just become virtually paralyzed with fear of uncertainty.
According to a new survey by investment firm and ETF issuer BlackRock, this election cycle has prompted investors to increase their cash holdings and basically hunker down in the face of that uncertainty …
Here’s the money quote from the story at WealthManagement.com:
More than half of investors have decided to only increase their cash holdings and not allocations in other investment vehicles, fearing future political and financial instability. Not surprisingly, the survey also found that 63 percent of Americans think the election will have a significant impact on the U.S. economy and say the looming election has impacted their investment decisions in some way.
Yes, investors view the election as a source of uncertainty, and that’s been a notable source of discomfort for us all when it comes to putting money to work.
But it doesn’t have to be that way.
Yes, we know that whatever happens on Election Day will have massive investment implications for every American.
That’s why I’ve called upon the entire Uncommon Wisdom Daily team of analysts and editors to research exactly how this presidential race could affect your family’s finances.
Together, we have been scrutinizing and evaluating how various outcomes will impact stocks, bonds, taxes, retirement strategies, and a whole range of other important investment topics.
So if you are one of the many investors on the sidelines right now, paralyzed with election uncertainty, I want to remind you that we are working every day on your behalf. You won’t want to miss a single issue, update or actionable alert in the next 22 days, and we’ve also got you covered long after Nov. 8 comes and goes. Stay tuned.
The SPDR S&P 500 ETF Trust (NYSE:SPY) rose $1.22 (+0.57%) to $213.60 per share in premarket trading Tuesday. Year-to-date, the largest ETF tracking the S&P 500 has gained 4.17%.
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