How do markets perform during an election year?

By Jonathan Scheid

 12-Aug-165-Aug-16Weekly% ChangeYTD% Change12 month %Change
S&P 500 Index 2,184.052,182.870.05%6.85%4.42%
Dow Jones Industrial Average 18,576.4718,543.530.18%6.61%6.29%
Nasdaq Composite 5,232.895,221.120.23%4.50%3.66%
Russell 2000 1,229.821,231.30-0.12%8.27%1.41%
MSCI EAFE (Intl.) 1,710.731,665.322.73%-0.32%-7.16%
10 Year U. S. Treasury Yield 1.51%1.59%-5.03%NANA
30 year U.S. Treasury Yield 2.23%2.31%-3.46%NANA


With all of the seemingly constant coverage of the upcoming election, one of the questions we consistently get from investors is, “How does the President impact the market?” While it is true that the President will set polices that could impact economic results, the reality is that corporate America and consumers can adapt too quickly to change. There will be winners and losers, but the President typically doesn’t have as much influence as we think.

In fact, when looking back at all the 28 Presidential election cycles from 1900 to 2012, we see that market results are fairly similar. Of the of 28 four-year periods since 1900, only six produced negative results and those losing terms were split evenly between Democrats and Republicans (source: Oppenheimer Funds). All of the other 22 terms experienced gains.

A different way to look at how the President impacts market results is to look at market returns during each year of a Presidential cycle. The chart below, prepared by S&P Global Market Intelligence, gives us some insight into how the U.S. stock market has performed in election and other years.

The table groups, in the bold lines, market returns from each year of a President’s term. Of all the years in a Presidential cycle, the third year is typically the best performing year while the second year has historically been the worst. It is interesting to note that, when looked at in whole, the average returns from each year were positive. There wasn’t a calendar year where the average returns were historically bad.

The table also shows the difference in results between first term and second term Presidential cycles. The historical results from our current cycle (fourth year, second term) are not encouraging. The S&P 500 actually experienced an average decline of -3.3% in the last year of a Presidential cycle when the incumbent is termed out.

This kind of market reaction is understandable. Any change brings uncertainty and, as we’ve talked about many times before, investors don’t like uncertainty. Yet, we have to take these results with a grain of salt. There were only six periods where this historically occurred, so the data set isn’t robust. Further, given that the market is already up for the year and all three major indexes reached new highs last week, history may not repeat this year.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Jonathan Scheid, CFA, President & Chief Investment Officer.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data. Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 14.115.c.9.14