Now that the Presidential elections are over, there is a lot of talk amongst investors regarding which way the Stock Markets will go. Obviously, people on both either side of the political aisle have different party-based opinions. But when it comes to investing, you shouldn’t let party loyalty skew your investment strategy one way or another because of how you “feel” about the results of the election may not track with historical reality.
If past history is any indicator, it appears that the stock market has in fact fared better under Democrat presidents since the 1950’s, when records were first kept analyzing this topic. According to research done by The TCW Group, the stock market has averaged about 12% annually under Democrats and about 6% under Republicans since around 1950. However, the data doesn’t tell you anything about how or why those returns were achieved. In many instances, the presidents were either victims of good or bad timing depending on what was occurring at the time they took office or left office. For the average investor, this data doesn’t confirm or support any significant long-term trends with which to formulate an investment strategy.
The accompanying chart is interesting in that it shows how the S & P 500 Index performed through the first 40 days after a presidential election since 1952. It shows that on average, the market was generally positive over many election periods.
It’s interesting to note that if investors were looking at the election in 2008 as any indicator of market performance, they would have gotten out of the market and missed one of the largest market upturns in recent memory, which began in March 2009. Of course, hindsight is great after the fact. This was somewhat similar to what happened after the election in 2000. The market dropped due to the bursting of the technology bubble, and then shortly thereafter September 11, 2001 occurred. It would have been a poor investment decision to get out of the market because one thought a Republican president was in office because the market began improving substantially in the fall of 2002.
The lesson to be learned here is don’t let party affiliation dictate your investment strategy because you may miss days and months when the market moves forward thus missing out on opportunities to achieve solid, long-term returns.
Jack K. Riashi, Jr., of Grosse Pointe Woods, is a financial advisor with Bloom Asset Management in Farmington Hills and is a member of the firm's Investment Committee. He has been serving clients in the financial service industry since 1987 and holds the designation of Certified Financial Planner (CFP®), a certification that less than 1 in 20 financial planners possess. To reach Jack regarding questions on investing, contact him via email at firstname.lastname@example.org.