It's Election Day! Presidential Elections & The Stock Market: Is There a Correlation?

It's election day! With any luck, we are almost at the end of the barrage of campaign ads, lies, and accusations of corruption, at least for this campaign cycle. And while the 2020 election has proven to be one of the most contentious in recent history, contention is nothing new in the world of politics. From the political match-up two centuries ago of Jefferson v. Adams to Biden v. Trump in 2020, Americans have often found themselves uncertain of a future under new or unchanged leadership.

While Adams and Jefferson didn’t shy away from printed ads and public debates, today’s political climate is vastly different with 24/7 access to constituents via social media, email blasts, phone calls, television ads, and radio announcements. Candidates and their associated parties today have the ability to inundate Americans with their messaging.

Pair this with the fact that 2020 has been anything but ordinary, and you have an election year truly like no other.

A Reminder About Emotionally Driven Investing

Whether you’ve been guilty of it yourself or you’ve seen others take part, social media channels like Twitter and Facebook make it all too easy to share damaging, misguided or opinionated messaging. This is true in any instance, but it can be especially effective when these posts are about political candidates.

Being inundated day in and day out with information about our country’s political future (especially information that’s alarming or scary) can take its toll on anyone watching or listening. You’ve already heard the predictions - “If Biden wins, the stock market is sure to tank.” Or, “If Trump wins, the stock market is sure to tank.” People everywhere (whether they’re journalists or your Aunt Sally) are making an argument for it either way.

As an investor, it’s important to drown out the noise, focus on your personal financial goals, and keep in regular contact with your financial planner if you're feeling the impulse to make changes to your portfolio based on today's news cycle. Your financial planner can offer the educated, unbiased advice you need to stay on track when it comes to preparing your portfolio for any potential changes in political leadership.

Historical Stock Market Performance During Election Years

While past performance is no guarantee or indicator of future performance, as an investor, it may interest you to see how the stock market has performed historically during and after presidential elections years. Below are the S&P 500 returns for the election year and the year following each election since 2000:¹  

Additionally, below shows the S&P 500’s percentage of return during a president’s full term dating back to 1981. This information was gathered from YCharts and presented by Forbes:²

Historically speaking, there have been a number of outside factors that determine the stock market’s performance - more so than simply which party is in power. These other factors could include whether or not we’re in a bull or bear market, the business cycle, civil unrest at home or abroad, trade wars, tax policy changes, and more.

If the election has you concerned about the future of your portfolio, take some time to speak with your financial planner. Part of his or her job is to help you put current events into perspective and focus on your long term goals. They may be able to provide important insights into whether or not your asset allocation should be readjusted and review any contingency plans you may have already put in place. If you don't currently work with a financial planner or would simply like a second opinion, feel free to reach out to me directly at chris.ladd@triprescient.com with questions or to schedule a time to chat.