Please accept my sincerest condolences.
By the time you read this message, election night will have come and gone, and though we may still be waiting for results, one half of this country will soon be very disappointed. Your man or woman will have lost, and you may be concerned about the future of our country. Before you jump out of stocks in advance of the destruction of the market that you are convinced is coming, please read this message. Who knows, maybe you and I will be reading it together.
Fortunately, we have been keeping stock market records since George Washington’s days, and we have a pretty good idea what the impact of the election will be.
Which party is best for the market?
The first thing to understand is that the party that wins has a little (emphasize “little”) impact on the markets. Looking at historical returns during presidential cycles, however, by the fourth year of the president’s administration, there is almost no difference, on average since 1949.
Which year is the best year?
The bigger issue is related to the 4-year election cycle.
Year one is typically flat. During the president’s first year, the newly elected president often enacts unpopular but necessary economic policies early in the term, which will require time to bear fruit.
Year two is typically volatile. Political noise in the runup to the midterm elections often causes volatility and results in weaker performance than other years.
Year three is the king. In the year before the next presidential election the administration in power gears up for re-election and often efforts are made to stimulate the economy. Historically this is the strongest year, and without fail, the market rally that has begun post midterm has been positive over 12 months.
Year four is skittish. With an election once again looming, markets again endure volatility, though this year is usually positive. And often there is a post-election bounce.
So, what is the best party for the market?
You had better take a seat . . . . The market does not prefer your party in power. It prefers split governance.
Since 1933, the average annual S&P 500 return is 11.3%* across all administrations. For that same time, a Democrat president with a divided congress saw a 13.7%* return, while a Republican president with a divided congress has seen that same 13.7%*. That is right, the market prefers a divided government, and it really does not care if president’s name is followed by a (D) or an (R).
So, what should you do?
Vote your conscience in a very partisan way. Work to put your man or woman across the finish line. Encourage your friends and family to vote. Put up yard signs proclaiming the superiority of your side and win every argument at the family reunion.
But invest in a bipartisan manner. Invest in a well-diversified portfolio based on your investment horizon and risk profile, and don’t change your strategy based on who won or lost the election. Be outwardly disappointed that your side did not sweep all branches of elected government but be inwardly ecstatic that your portfolio is likely to do better when both the (D)s and the (R)s have a finger in the mix.
Did You Know?
Your employer sponsors this financial wellness benefit from Francis LLC. The benefit connects you with down-to-earth financial planners who educate and advise on any money matters…without the sales pitch. We are exclusively engaged by employers like yours and have no investment products to sell, so you can feel confident that you will always receive objective advice.
Your financial planner will help you set priorities and achieve your money goals, without judgment or financial jargon. Know that all discussions are kept strictly confidential. This service is offered as an employee benefit with no per-session co-pays, so you can meet with a financial planner as often as you wish. Services are paid by your retirement plan or your employer.
Connecting with a financial planner is easy! Here’s how:
- Visit FrancisWay.com > Services > Participant Portal
- Call (866) 232-6457
Download the free mobile app (Search for Francis LLC)
*Source: Fidelity
