There will be lots of claims from presidential candidates between now and November 8th about how the U.S. economy would benefit if he or she wins the election. But which candidate is better for your Retirement Plan and financial future - Donald Trump or Hillary Clinton? What about Gary Johnson or Jill Stein? Lots of Americans could be asking these type of questions right now. Here’s some historical insight that might help.
Since 1833, the Dow Jones Industrial Average has gained an average of 10.4% in the year before a presidential election, and nearly an average of 6% in the election year. By contrast, the first and second years of a president’s term see average gains of 2.5% and 4.2%, respectively.
Recent years have been an exception to those averages. “Given that the past three years are so out of sync with the normal cycle, we’re not certain what 2016 will bring,” says Jim Stack, a market historian and Publisher of InvesTech Research. The current cycle is anything but average due to the Market crash in 2008 and the Dow going up 27% in the first year of President Obama’s second term. Then last year, which was supposed to be the strongest of the cycle, saw the Dow Industrials drop 2%.
Since 1928, the Standard & Poor's 500 has dropped an average of 2.8% in presidential election years without an incumbent seeking reelection, notes Stephen Suttmeier, Technical Research Analyst at BofA Merrill Lynch Global Research. Of the eight years in a two-term presidential cycle, the final year of the second term is the only one that has averaged negative market returns, Suttmeier says. By contrast, in years when the sitting president is up for reelection, the S&P 500 has averaged returns of 12.6%, he adds.
S&P 500 Stock Market Returns in Election Years
Year Return Candidates
1928 43.6% Hoover vs. Smith
1932 -8.2% Roosevelt vs. Hoover
1936 33.9% Roosevelt vs. Landon
1940 -9.8% Roosevelt vs. Willkie
1944 19.7% Roosevelt vs. Dewey
1948 5.5% Truman vs. Dewey
1952 18.4% Eisenhower vs. Stevenson
1956 6.6% Eisenhower vs. Stevenson
1960 0.5% Kennedy vs. Nixon
1964 16.5% Johnson vs. Goldwater
1968 11.1% Nixon vs. Humphrey
1972 19.0% Nixon vs. McGovern
1976 23.8% Carter vs. Ford
1980 32.4% Reagan vs. Carter
1984 6.3% Reagan vs. Mondale
1988 16.8% Bush vs. Dukakis
1992 7.6% Clinton vs. Bush
1996 23.0% Clinton vs. Dole
2000 -9.1% Bush vs. Gore
2004 10.9% Bush vs. Kerry
2008 -37.0 % Obama vs. McCain
2012 16.0% Obama vs. Romney
2016 ??? Clinton vs. Trump
Election results may not be so great at forecasting stock market returns. But history shows that the stock market can be an indicator of who might win a presidential election. If the stock market is up in the three months before an election, the incumbent party is favored to win. Losses over the three months before an election tend to favor a new party. 22 presidential elections have occurred since 1928. 14 of those 22 elections were preceded by gains in the three months before Election Day. In 12 of those 14 elections, the incumbent (or the incumbent party) won the White House. In seven of eight elections preceded by three months of stock market losses, a new party won the election. Exceptions to this correlation occurred in 1956, 1968 and 1980. According to Jim Stack, the S&P 500 has an 86.4% success rate forecasting presidential elections.
It will be interesting to watch what happens this year and see if the Market and the election results show a correlation. This election year is out of sync with other cycles so maybe it won’t.
In conclusion, most likely when it comes to the Stock Market - presidential elections make little difference in the long-term. “Focusing on which party wins the White House is unwarranted (at least from an investing standpoint)”, says Russ Koesterich, Chief Investment Strategist at BlackRock. Generally speaking, most investors can be prepared for whoever wins the election if they have a long-term perspective. Continuing to focus on your personal goals and your retirement plan is a good idea regardless of political cycles and elections every four years.
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