With Democratic President-elect Joe Biden’s victory, many Americans are trying to predict how the stock market will perform the rest of the year.
Since 1928, the S&P 500 has produced negative annual returns in three of five presidential years when a Republican president held office and a Democrat was elected.
MagnifyMoney researchers took a deeper dive at how markets have performed historically during presidential election years. Here’s what we learned.
Since 1928, the S&P 500 has produced negative annual returns in only six of 23 presidential election years. Meanwhile, the Dow Jones Industrial Average has produced negative annual returns in seven of 23 presidential election years.
The S&P 500 was up 12% year to date as of 12:30 p.m. ET Nov. 9.
The Dow was up 3.9% year to date as of 12:30 p.m. ET Nov. 9.
Elections can have an impact on the stock market as uncertainty around policy direction in the run-up is eliminated, according to Tendayi Kapfidze, LendingTree’s chief economist.
“Since the stock market tends to go up over time, the most likely outcome is that the market will rise, as shown by the historical data,” he said. “For most investors, there is no need to take any action specifically because of election outcomes or election expectations.”
We sought to break down things further by looking at political parties, also dating to 1928.
Letting politics influence your portfolio positioning is dangerous, Kapfidze said.
“The two most recent presidents bear this out,” he said.” Under [President] Obama, many conservative investors were railing on about what they viewed as socialist policy and took actions, which meant they missed out on one of the greatest bull markets in history. Under [President] Trump, many liberal investors concerned about his perceived incompetence and corruption missed out on the continuation of that bull market.”
The financial sector saw the highest rate of S&P 500 returns from 1992 to 2014. Here’s a closer look at the 10 sectors that were examined, via FiGuide:
Gold has generated modest gains in election years. However, the second year of the presidency is when gold performs best, with an average return of 12.8%.
LendingTree looked at S&P 500 and Dow Jones Industrial Average returns during election years, along with which political parties were in office. Sources included Macrotrends, Charles Schwab and the Federal Reserve Bank of St. Louis.
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