The stock market hates uncertainty, and presidential elections could be considered the ultimate uncertainty. But regardless of whether President Donald Trump or former Vice President Joe Biden are victorious in November, stock market performance is expected to remain steady, according to research released today from investment firm Rebalance.
Rebalance, headquartered in Palo Alto, Calif., and Bethesda, Md., reviewed more than 100 years of financial data to understand the impact of presidential elections on the stock market (1960-2016) as well as stock market returns under different ruling political parties (1860-2010).
Impact of Presidential Elections on Stock Market
During the last 23 presidential election years and each subsequent year (1960-2016), the stock market was down four times during an election year and down 10 times the year after an election. The down-market years were mostly recession years having nothing to do with the election. The average return during election years over this period was +11.3%, and it was +9.9% in the years subsequent to the election.
Stock Market Returns Under Different Ruling Parties
Stock market returns under different ruling political parties from 1860 to 2010 show annual returns of 8.2% per year for Republican presidents and 8.4% per year for Democratic presidents, based on a 60% equity, 40% fixed-income portfolio. The annualized compounded return is minimal between the two parties.
“History clearly shows us that stock markets generally behave positively during both presidential election years and subsequent years and that the market has maintained its upward trend over long periods of time regardless of who ends up in the White House,” said Mitch Tuchman, Managing Director of Rebalance.
“The long-term average returns of a diversified portfolio of stocks and bonds is virtually the same during Republican and Democratic administrations and historically not significant for stock market performance,” Tuchman added. “Any exceptions related to the party of a president are likely more related to economic conditions than politics.”
A review of the performance of markets going back to 1926 serves as a powerful reminder that stock markets go up the vast majority of the time and under many different administrations. As such, a statement on the research findings from Rebalance said investors should develop a personal financial plan and “stay the course” regardless of which political party is currently in power in Washington.
Launched in 2013, fiduciary wealth management services provider Rebalance currently manages more than 600 clients with more than $750 million in financial assets. In August, the firm launched Better K, a new 401k product designed to take the firm’s sophisticated, personalized approach to wealth management and apply it to retirement planning for small business owners and their employees.
