43. Stock Market During Election Years: We're Not Getting Political, But Is The Market?

Jul 5, 2024

Delve into how the stock market behaves during election years without delving into politics. Historical data reveals that the 4th year of a presidential cycle often sees positive market trends. Discover the minimal differences in market performance under Democrat versus Republican leadership. Learn how unified government can enhance market returns, while fiscal policies and short-term reactions have lasting impacts. The big takeaway? Staying invested is key, regardless of who's in power!

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ANECDOTE

A Fact-Finding Election Episode

Jess Inskip and Jessie DeNuit set the episode as a fact-finding mission into election-year market behavior.
They plan to analyze historical Dow data and sector-level effects going back to the 1900s.

INSIGHT

Elections Raise Volatility, Not Direction

Election years increase volatility primarily from uncertainty and seasonality, especially around October and November.
Historically the market often rallies into year-end regardless of the election outcome.

INSIGHT

Party Doesn’t Move Long-Term Market Returns

Since 1900 median annualized returns in election years are around 7.7%, with Republicans at 7.9% and Democrats at 7.7%.
The historical difference by party is marginal, showing little dispersion in long-term market returns.

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How Does The Stock Market Perform During an Election Year? We are not getting political in this episode -- however, we are on a fact finding mission to understand if the stock market is. Let your fin-mom and fin-auntie break it down for you. 😉🔮

Does the U.S. Presidential election affect the stock market? Does the political party of the elected leader make a difference? Let's discuss, shallllll we? We're going to look at historical data going back to 1900 under each party and even drill down to the sectors.

Seasonality Happens Every Year, But Past Performance Is Not Indicative of Future Results 👻

There are 4 years in a U.S. Presidential cycle, the 4th year is positive for the stock market historically (S&P 500). Since 1928, the 4th year of an election cycle is up 73% of the time with a median return 9.5% - no matter who the political party is.

Does the political party in charge matter?

Looking at Democrat vs Republican, we go back to the 1900s when the DJIA (Dow Jones Industrial Average) was created and see a very minimal difference whether Dem or Rep is in office. Clearly there’s no dispersion because the stock market relies on growth, but the outlier might be those instances when the political party of the president runs both the house and senate, the data changes a little, but overall, the outcome of the Presidential election does not really affect the stock market. The median annualized return every election year is 7.7% when a Democrat wins and 7.9% when a Republican wins, historically. Such a very small difference - make whatever conclusions from that you'd like. 😘

The Takeaway

Elections don’t really impact the stock market. There’s natural seasonality around the time of year Presidential elections take place, but the election itself and the outcome don’t make much of a difference. Time in the market is still your friend!! Stay consistent with how you invest and don’t be an emotional investor. Look at the overall stock market performance over a large span of time and you’ll see that there are always ups and downs, but when you stay invested for a long time your return inevitably goes up.

Check out this article Jess wrote for UK Money Week:

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