What’s the hot topic of the day? The election of course. It’s drowning out everything else. So, do you need to worry about the stock market? Should you get out of the market until the presidential election mess gets out of the way?
There has been lots of academic research on Democratic vs. Republican administrations in regard to the stock market. Their conclusion? Whoever wins presidential elections have little bearing on the markets (if any at all).
There has also been lots of academic research about particularly contentious elections like this. The conclusion? Nothing. It is little to no bearing on the market.
You really need to accept this fact: The stock market is absolutely and fundamentally unknowable and illogical. If it made sense, we would all make a fortune. Just because something seems ready to happen doesn’t mean a darn thing. (How in the world is the stock market going up during a global pandemic?!)
Let’s get back to the presidential election fears. No matter which side of the aisle you fall, this is the cold hard data.
Ronald Reagan (with total market return during four-year term)
1st term +30%
2nd term +67%
George H. W. Bush
1st term +51%
1st term +79%
2nd term +73%
George W. Bush
1st term -12%
2nd term -31%
1st term +85%
2nd term +53%
1st term +47%
Random note: Can you believe how much the stock market grew during those four year periods?! That’s incredible.
You need to remember though; presidents inherit economies. If the economy is doing crappy right before they become president, it is not necessarily fair to judge them on that fact. For example, the is nothing George Bush could have done about a huge internet/technology bubble or a real estate crash.
You also need to remember that politics and business do not walk lockstep with each other. Huge technological advances can overcome any political administration.
“Presidents get far too much credit, and far too much blame, for the health of the U.S. economy and the state of the financial markets,” says Capital Group economist Darrell Spence. “There are many other variables that determine economic growth and market returns and, frankly, presidents have very little influence over them.” (source)
A little more data: Since 1900, Democrats have been slightly better for stocks, with the Dow up an average of nearly 9% annually when the Democrats are in control, compared with nearly 6% per year during Republican administrations. (source)
But again, those numbers are misleading because economies work in cycles are some administrations get stuck with a bad situation.
According to USA Today, “Since 1952, the Dow Jones Industrial Average has climbed 10.1% on average during election years..”
Hmmm…that’s interesting. What has the stock market returned overall in the past twenty, thirty, fifty, and one hundred years? 10%. In other words, election years have zero bearings on long term performance.
What is the point of all of this?
Is doesn’t matter.
It doesn’t matter in two ways.
1st- There is no evidence that elections swing the markets one way or the other.
2nd- You are investing long-term. Even if there are temporary fluctuations. It does not matter. The research is extremely clear. The more you try to time the markets the less money you will make.
There is no way to beat the market by having access to information other people don’t have. Maybe this was possible in the 1940s, but today with technology, everyone knows exactly the same thing at exactly the same moment. Don’t fool yourself into thinking that you are the first person to think successful vaccine companies are going to go up.
Don’t buy into the emotional buying and selling. You will get burned.