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Which candidate to chose? Which candidate will help the markets? Which candidate will help my portfolio most? Which candidate will give ME a boost?
The answer might surprise you.
In an election year, you’re sure to hear many talking heads espouse ideas that one party or one candidate is better for the market and by default, your stock portfolio. You’ll hear a multitude of statistics about the Presidential election, and a bevy of stories on how the stock market behaves in a Presidential election year. You’ll hear and read stories about how one Presidential candidate will have a positive effect on the markets and how the other candidate will have the reverse effect.
I’ve always been a pretty conservative voter and I’ve always thought that Republican candidates would be best for the economy, but the hard truth for ideologues on both sides of the aisle to face is: the economy, not the election, not the candidate, drives the stock market. The Presidential candidate who gets elected, no matter the party, really doesn’t seem to affect your stock portfolio.
Before you start Googling all this information on candidates and their effects on the market, start with Jeffrey A. Hirsch’s Stock Trader’s Almanac 2008 (Almanac Investor Series).
1. The stock market has shown no discernible pattern in post-election years. If you look at post election years from December to December, there have been 17 years of increases and 16 years of decreases.
2. Regardless of which party occupies the White House, the market doesn’t appear to to be affected one way or the other. Republican victories have produced a rising market 10 times and a lower market 10 times. Democrats have produced a rising market 7 times and a lower market 6 times.
3. The Hirsch Almanac shows 15 elections between 1900 and 2000 with the market rising 13 times (in the year following the election year) when the incumbent was re-elected. The other two times posted very modest losses of 0.5 percent and 2.3 percent. When the incumbent lost, the market declined 6 out of 9 times, but only once was the decline considered mild. Re-electing a President would appear to be good for the market in the year following the election!
Who gets elected (other than an incumbent) doesn’t appear to have a major effect on the stock market.
So what does?
If you were to look at the 11 post election calendar years before 2000, there were 6 market gains and 5 losses. Nothing interesting here, right? Not so fast, if you compare the economy’s performance with the market’s performance, you might start to see a pattern emerging.
Over that same time period, in 5 of those post election years, the economy entered a recession and the market declined. In the 6 post election years where there was no recession, the market rose 5 times and declined only once. It’s almost impossible to assign a single factor to market performance, but it appears that the state of the economy determines where the market heads…not who is elected President, or even which party is elected.
Where it concerns your stock portfolio, the data seem to indicate that you can ignore the media hype. Concentrate your investment thinking on making good decisions in light of the current economic situation, rather than just the current political situation. Buy businesses, not stocks. Invest in ETF’s and mutual funds that match your investment strategy. Make good choices with regards to your allocations and your choice of investment vehicles. Thank goodness we can tune out the politics. I don’t know about you, but I’m sick of the whole process.
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This is the first election in over 25 years that I may sit out. I don’t see a shred of a difference in any of them.
I agree. But please don’t sit out the election. Thousands have died just to secure your right to make a choice. Please use that right in THEIR honor…no matter who you vote for.
We’re on the same page. I read a book several years ago called “The Government Racket. Washington Waste from A to Z.” It was an eye-opener. In it the author lays out how two thirds of the Federal budget is wasted on worthless ideas, departments, pork, and pet projects. The biggest eye opener though, was that there really isn’t anyone in charge of anything. Senators and Congressmen spend 95% of their time raising money. The President spends about that much as well.
When will they learn that the markets are best left alone, that cream rises to the top, and that we don’t need them meddling in business, markets, our lives, or our schools?
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