How Politics Relate to Your Money and How the Stock Market Relates to the Election with Victoria
How Politics Relate to Your Money and How the Stock Market Relates to the Election with Victoria
On this episode of Financially Naked: Stories from The Financial Gym, our host is Victoria Sechrist, and she is going to talk about politics, your money, and the stock market.
Podcast Notes
BlackRock did research on what happens when the incumbent, currently the Republican party, wins the presidential election. They studied the stock market performance from 1928 through 2019.
BlackRock looked at how the S&P 500 and the US Large Cap Index performed. The S&P 500 represents the 500 largest stocks on the US stock market. The data they were looking at is how these top companies performed during election calendar years, like 2016, the year the last presidential election took place.
BlackRock found that when the incumbent wins, during the calendar year of the election, stocks typically returned an average of 13.4%. This is above an average annual return.
When the opposing party is voted into the Oval Office, BlackRock found that during the calendar year of the election, stocks typically returned an average of 9.3%.
For most of the calendar year, the stock market hasn’t baked in who was elected. The stock market has about a month and a half to react to a new president.
It’s not just the election that affects the stock market. Remember, there are thousands of companies on the US stock market and they are not only responding to the election.
Strategas Research Partners found that the S&P 500 performed best when there was a Democratic Senate, a Democratic president, and a Republican House. For the years that this was the set up, they found that the market returned an average of 13.6%.
Strategas also found that the S&P 500 typically returned 10.8%, when there was a Republican president, Republican Senate, and a Democratic House. This is what we have right now.
These statistics do not show causation, this is more about correlation. Do not make portfolio decisions based on who is in the White House. You are investing for more than just a four-year period. Your investment strategy needs to be based on your timeline and your goals.
Don’t be alarmed if you saw your portfolio dip in September. This is common in an election year. Buy low and sell high.
In 2000, the president was not decided on Election Day. This was when George W. Bush was running against Al Gore. There was a hanging chad situation in Florida. It took over a month before George W. Bush was announced as the winner.
During that time, there was a lot of uncertainty. The election was on November 7, and it wasn’t until mid-December a president was named. The stock market fell more than 8% in that time. In the big picture, this is a very short period of time, and the market will recover.
Make sure you are diversified in your market allocation and don’t panic if the market drops.
The takeaway is that the stock market is a rollercoaster and a presidential election can bring volatility. Regardless of how the election goes, if you look at the last 90 years of S&P 500 performance, it has on average a positive return of about 7%, adjusted for inflation.