Yes, It’s An Election Year – But Markets Don’t Play Politics
Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer
Presidential election years always have unexpected twists and turns, with sharp-elbowed candidates proposing policies that can affect the economy. This year it looks like policies affecting taxes, prescription drug prices, and immigration will figure prominently in candidates’ stump speeches. Uncertainty about the future may result in increased stock market volatility.
We consider periods of market volatility an opportunity to buy stocks at a discount. We encourage investors to adopt a long-term view of investing and election years are no exception. History shows that the stock market is party-agnostic. On average, the stock market rises regardless of whether there’s a Democrat or a Republican about to sit in the Oval Office.
The S&P 500 has only declined in two of the last 20 election years, according to research from Capital Group. And in those years, 2000 and 2008, the declines were attributed to bursting asset bubbles, not to the presidential election. In 2000 the technology stocks tumbled and in 2008 the housing bubble deflated. Post-election stock market returns may have more to do with whether the stock market is over or undervalued at the start of the president’s term and less to do with the president’s party affiliation.
Long-Term Horizons.
The good news is that even investors who started investing in the market when bubbles burst came out ahead if they remained invested for the next decade. Money invested at the beginning of each of the past 20 election years and held for the subsequent 10 years has always grown. Most impressively, in 18 of the 20 periods, investors have doubled their money by the end of the decade, according to Capital Group data.
The two decade-long periods with the best returns started under presidents of different parties. The 1976-1985 era, when $10,000 grew to $49,044, began with Jimmy Carter, a Democrat, as president. He served one term before losing the election to Ronald Regan, a Republican. Regan was in office during the best performing decade, from 1980-1989 when a $10,000 investment grew to $53,508.
Before Republicans declare victory, consider that two of the worst decades occurred under Republican leadership as well. In 2000-2009, a $10,000 investment only grew to $13,025 under George W. Bush. Republican Richard Nixon was president from 1968-1977 when a $10,000 investment grew to $17,232. During his term, the country lived through the Vietnam War, Robert Kennedy’s and Dr. Martin Luther King Jr.’s assassinations, the OPEC oil embargo, and Watergate—and the market still was higher at the end of 10 years.
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Market Timers Fall Behind.
Investors tempted to move to the investment sidelines during the election season should consider the following three scenarios provided by Capital Group after looking back over the past 23 election cycles. In the first scenario, $10,000 is invested in stocks in January of an election year and after four years the portfolio is worth $15,860. In the second scenario, $1,000 is invested every month for 10 months. That portfolio also grows over four years, but only to $15,765. In our final example, the nervous investor holds off and invests the $10,000 in the January after the presidential election. In the fourth year that investor has a portfolio worth $14,867.
Analysts looking for market trends have discovered that stock market returns tend to be higher in the second half of presidential election years than they are in the first half. In presidential election years dating back to 1926, the stock market has returned 1.3% and 1.5% in the first and second quarters and 6.2% and 3.3% in the third and fourth quarters, according to BlackRock research. But again, investors enjoyed gains in each of the quarters.
In the end, it’s the amount of time spent invested in the market—not timing of the market—that’s essential. A $1,000 investment in the S&P 500 made at the start of Franklin D. Roosevelt’s first term would have grown to more than $21 million by the end of last year. History shows that investors who keep calm and carry on with their long-term investment plans during the political silly season are often rewarded for their stiff spines.
Successful investing is a long game, but one that also requires knowledge of historical data, experience, and a strong and customized strategy. That’s what we offer to all of our clients through our personalized Plan Well, Invest Well, Live Well.™ strategic process to help them gain confidence in their financial future and ultimately Live Well. Schedule a complimentary consultation on our website or by calling (860) 928-2341.
Authored by Principal/Managing Partner Laurence Hale AAMS, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.
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