The 2020 presidential election is upon us and it is shaping up to be the most contentious election in a generation. The top question we keep getting asked is what this election might mean for your investments. Given the polarity of this election cycle, we decided to look at the historical market performance for stocks during election cycles to take some of the political noise out of this discussion. We started in 1950 and looked to see how the markets reacted in presidential election years and non election years.

How have stocks performed in election years? Stocks have performed fairly well during election years. In the 17 election years since 1950, stocks are positive 82% of the time in presidential election years. During non election years, stocks have a positive return 69% of years and in all years (election and non election), they post gains 72% of the time.

The average and median price performance for the S&P 500 is lower in election years than non election years. In election years, the average performance for the market is 6.73% and the median is 9.54%. In non election years, stocks average a return of 9.61%. This is certainly not a definitive statement that you should take your money and hide in elections years. Stocks do exhibit less risky behavior during election years. The volatility for stocks in presidential election years is 14.16% while it is 17.0% in non election years. The lower your volatility the less risky an investment is considered.

The one caveat to bear in mind is the worst market year since 1950 took place in 2008. This was an election year and has a big impact when looking at this data. The S&P 500 dropped a staggering 38.49% during 2008. If you exclude the 2008 sell off returns look much close to all years and non election years. Election years have an average return of 9.6% and a median return of 10.7% if you remove 2008’s performance. The risk return relationship looks even more attractive with a volatility of 8.79%.

Looking at the market performance on a monthly basis, there are certain months that do tend to stand out from a performance and volatility perspective during election years. In January, March, and November the market sees an uptick in volatility during presidential election cycles. This is somewhat logical because the campaign begins in earnest in January, March is usually a pivotal month for primaries and November is when we go to the polls. Other months tend to see lower volatility when compared to non election years.

After reviewing how things have done in prior election years, how does this translate to your investment strategy? Your take away is you should not make significant changes to your investments because we are headed into a presidential election year. We understand that there is apprehension as we head into 2020, but don’t let that cause you to stray from your financial plan.

The returns for the markets, excluding a bubble like 2008 (and we are not in a bubble right now), look remarkably similar to an average market year. So you should not make a drastic change to your investments just because it is an election year. There will be short periods of slightly higher volatility but they will subside. The US has experienced other contentious elections and we have only seen a negative return in three elections years since 1950.

Please contact me at 913-871-7980 or by email to discuss your financial planning and investment management needs.

Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

How Do Stocks Perform In Presidential Election Years?