Market Returns and Election Years

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I think we can all agree that it has been a tumultuous year full of some unexpected global events. Now, we face the uncertainty of a presidential election here in the U.S. Many clients have asked for our opinion on making any changes to their investment portfolio in anticipation of possible election-related market volatility.

So, as we do for all questions of this sort, we went back to the historical records to see if there were any lessons learned that could help guide us in our decision-making process.

First of all, we reviewed the U.S. Total Stock Market returns for the three-month period preceding all 23 elections going back to the year 1928 (this data was provided by the researchers at Avantis Funds). The difference between the best return and the worst return was 39%. Yet, there were only five negative periods. The largest outlier was the 2008 election, which saw a decline of 23.4% associated with the global financial crisis. Even with this large negative event, the market was positive 78% of the time for all 23 elections since 1928 and returned a very respectable 2.8%. 

Next, we reviewed stock market returns for the six-month period subsequent to the presidential elections. After the 1932 election of Roosevelt, the market saw an amazing return of 56.2%! The difference between the best and worst returns was 36.9% if we omit the outlier in 1932, which was approximately the same as for the three-month period before the election. There were only eight negative periods, with the largest negative being the 1972 election that saw a decline of 14.0% associated with the Watergate scandal. Even the average return for the six months after the election was an impressive gain of 7.5%. 

So, there has certainly been some volatility in the financial market three months before the election, but almost 65% of the time, market returns have been positive and on average strong during the 6-month period after the election.

Next, we stepped back and looked at long-term results of the stock market since 1928, using data provided to us by the research team at Dimensional Fund Advisors. Even with all of these world events such as the Great Depression, World War II, the Cold War, and 9/11, 1 US Dollar invested in 1928 had become $9,237 by December 2019, a truly inspiring performance! The economy continued to grow, and the financial markets continued to compound during both Republican and Democratic administrations.

In general, we do not support changing your portfolio allocation in anticipation of the election. Investors are rewarded for assuming equity market risk that is appropriate to their individual financial case.

Politicians need to appeal to their base in order to capture the vote from their supporters. Then, once they are elected, they usually become more pragmatic and are forced by the urgent realities of office to make decisions that move them more mainstream. The American system of government really does adapt to face new crises and take advantage of new opportunities.

As Winston Churchill once famously observed that “Americans will always do the right thing, only after they have tried everything else.” The success of the American economy, despite some big challenges, continues to be an example to the rest of the world.


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