It’s Another Election Year – What’s in Store for the Markets?

Colleen Gillespie, CTFA, AIF®

Happy New Year and welcome to a new decade! It’s hard to believe we’re in another presidential election year already. In preparing these thoughts, I reviewed my article from February 2016 and honestly, not much has changed to alter any opinion on whether this election will be good or bad for the stock markets. The S&P 500 realized a sizzling 31.49% increase last year, despite a trade war with China and the impeachment of President Trump. Looking back at my article from four years ago, we deciphered then that the market is agnostic to party preference and leadership.

You’ve heard me state many times that the market does not like uncertainty, so as we approach Election Day, which is Tuesday, November 3, I suspect we will see more volatility in the markets over the previous three. It’s lack of a clear direction that rattles the market. Perhaps we’ll know more once the Democrats narrow the field and elect their candidate to run against the incumbent, President Trump.

We still like an article written entitled “How Presidential Elections Affect the Stock Market” [i] from February 2016, and distributed again by Kiplingers in November 2019. The article was written by Anne Kates Smith, Senior Editor of Kiplingers. She reviews the truths and myths that the election may have on the markets and cites data hailing back to 1833! We’ve provided a link to the entire article below, but here’s an excerpt of interest that may keep us guessing.

“A political crystal ball. Election results may not be so great at predicting stock market returns, but the converse is not the case. It turns out that the stock market has an uncanny ability to predict who will call the White House home for the next four years. If the stock market is up in the three months leading up to the election, put your money on the incumbent party. Losses over those three months tend to usher in a new party. The statistics are compelling. In the 22 president elections since 1928, 14 were preceded by gains in the three months prior. In 12 of those 14 instances, the incumbent (or the incumbent party) won the White House. In seven of eight elections preceded by three months of stock market losses, incumbents were sent packing. Exceptions to this correlation occurred in 1956, 1968 and 1980. According to Stack, the S&P 500 has an 86.4% success rate in forecasting the election.”

Looking strictly at economic factors, the risk of a recession occurring this year has lessened, and the lifting of some tariffs could improve earnings and inspire more capital expansion. Stay tuned! Like a great rollercoaster ride, this year could bring many twists and turns.

[i][i]https://www.kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html