Elections and Their Effect on the Market

How much impact does the US Presidential Election have on stocks 

You have a growing business, as well as a growing investment portfolio.  Your portfolio holds a large percentage of US stocks, and you are concerned about the upcoming US election and, its effect on your portfolio.  My name is Brent Vandekerckhove and I’m a financial advisor at RGF Integrated Wealth Management- let’s talk elections and their effect on investments. 

As elections approach, this often brings anticipation and questions of how the market may respond.  We’ve got data from the last 100 years of federal elections in the US, but let’s focus on the last 4 US presidents, 2 Republican, and 2 Democrat, to determine if a specific political party has a direct effect on the markets.  Let’s also assume that our “market” is the main US stock market, the S&P 500 index. 

We’ll start with $1 at the beginning of the presidential term and track the growth of that $1 to the end of the term.   We’ll also include numbers for inflation and GDP to give some further context.

Starting with Republican George W Bush, he took office in 2001 and served until 2009.  Inflation was at an average of 2.3%, average annual GDP growth was at 2.2%, but this $1 invested fell to $0.79 at the end of his term.

Next we’ll examine Democrat Barack Obama. He was in office from 2009-2017, inflation averaged at 1.7%/year and GDP growth averaged 1.7%/year. That $1 invested in 2009 grew to $2.94 by 2016.

We’ll move on to Republican Donald Trump, serving from 2017-2021. Inflation averaged at 1.8%/year, GDP growth averaged at 1.4%/year, and if you invested $1 in 2017, it grew to $1.81 in 2021.

Most recently, let’s look at Joe Biden.  He took power in 2021 and is presently in office.  Inflation averaged at 5.5%, GDP growth averaged 3.4%, and that $1 dollar you invested in 2021 would be worth $1.53 in Sept 2024.

So is there a pattern here? 

We not only looked the last 4 US presidents, also looked at the last 100 years of presidential terms, to include a large sample size and eliminate recency bias.

In summary:

1. For nearly 100 years of US presidential terms, there is a consistent growth for US stocks regardless of the administration in place is Republican or Democrat.   In fact, The S&P 500’s average annual growth over the past 100 years is 10.6%.

    

2. The stock market’s return was negative for a presidential administration only when the country was experiencing a financial crisis in 2008 or experiencing a stagflationary cycle in 1973.

    

3. Neither party can lay claim to superior economic or financial market performance.

The outcome of an election is only one of many inputs to the market. This is an important lesson on the benefits of a long-term investment approach. When we build financial plans for clients, we ensure there is a disciplined investment approach in place to help you build and protect your wealth.  Please reach out if you think this could be of help to you.

Brent Vandekerckhove
Financial Advisor & Portfolio Manager
T 604 732 6551

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