The US once again finds itself in an election year. Already, the air is thick with speculation and debate. Amidst the fervor, investors often find themselves wondering: should they adjust their portfolios based on election outcomes? The short answer is no. Historical data and market behavior suggest that while elections and politics capture public attention, they do not significantly dictate the performance of the stock market.
1. Markets Have Marched Upward Regardless of Which Party Controls the Presidency
Furthermore, 83% of presidential terms have had positive stock market returns, averaging 9.5% per year. Only three presidential terms had a negative return and those were due to larger economic issues. For example, the markets declined during Herbert Hoover’s term due to the Great Depression and George W. Bush’s term experienced a decline linked to the 2008 financial crisis. These instances highlight that economic fundamentals, rather than political leadership, play a more critical role in market performance.
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2. Stocks Have Also Gone Up Regardless of Which Party Controls Congress
While actions by Congress might indirectly impact markets via policy, other factors tend to play an even bigger role, such as geopolitical events, interest rate changes, and economic shifts.
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3. Returns in Election Months are Randomly Distributed, Indicating the Winner of the Presidency Doesn’t Significantly Impact Markets
Investors might expect some short-term volatility due to uncertainty and speculation, but long-term trends remain unaffected by the electoral process.
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In summary, while it might be tempting to take action in your portfolio based on your view on how the election might unfold, the best strategy is to stay the course with your investments. It is better to focus on political actions you can control, like voting, writing postcards to get out the vote and donating to political campaigns.