Presidential Elections & The Stock Market: Is There a Correlation?

Drama, lies and accusations of corruption - no election year is complete without them. And while the 2020 election has proven to be one of the most contentious in recent history, contention is nothing new in the world of politics. From the political match-up of Jefferson v. Adams to this year’s Biden v. Trump, mud has always been slung, accusations have always been made and many Americans have found themselves uncertain of a future under new (or unchanged) leadership.

While Adams and Jefferson didn’t shy away from printed ads and public debates, there’s something vastly different about today’s political climate - 24/7 access to constituents. Social media, email blasts, phone calls, television ads, radio announcements - today’s candidates and their associated parties have the ability to inundate Americans with their messaging.

Pair this with the fact that 2020 has been anything but ordinary (which, of course, no one needs to be reminded of), and you have an election year truly like no other.

A Reminder About Emotionally Driven Investing

Whether you’ve been guilty of it yourself or you’ve seen others take part, social media channels like Twitter and Facebook make it all too easy to share damaging, misguided or opinionated messaging. This is true in any instance, but it can be especially effective when these posts are about political candidates.

The problem is, being inundated day in and day out with information about our country’s political future (especially information that’s alarming or scary) can take its toll on anyone watching or listening. You’ve already heard the predictions - “If Biden wins, the stock market is sure to tank.” Or, “If Trump wins, the stock market is sure to tank.” People everywhere (whether they’re journalists or your Aunt Sally) are making an argument for it either way.

The anticipation building up to elections often brings with it questions about how financial markets will respond. While important, the outcome of an election is only one of many inputs into the market. As an investor, it’s important to make a conscious effort to drown out the noise, think about your personal financial goals and keep in regular contact with your investment advisor. He or she can offer the educated, unbiased advice you need to stay on track and unswayed when it comes to preparing your portfolio for any potential changes in political leadership.

Historical Stock Market Performance During Election Years

Of course, past performance is no guarantee or indicator of future performance. But as an investor, it may interest you to see how the stock market has performed historically during and after presidential elections years. Below we’ve charted out the S&P 500 returns since the 2000 election:¹  

Additionally, below shows the S&P 500’s percentage of return during a president’s full term dating back to 1981. This information was gathered from YCharts and presented by Forbes:²

Historically speaking, there have been a number of outside factors that determine the stock market’s performance - more so than simply which party is in power. These other factors could include whether or not we’re in a bull or bear market, the business cycle, innovation, civil unrest (at home and overseas), trade wars, tax policy changes and more.

Consider further, this graphic found in Dimensional's recent piece on the impact of a Presidency on stocks:

In reviewing the results of markets and economic data for nearly 100 years, it is found that US presidential terms have done little to derail what has been a consistent upward march for US equities regardless of the administration in place. An important lesson on the benefits of a long-term approach to investing. 

If the upcoming election has you worried about the future of your portfolio, take some time now to speak with your investment advisor or financial planner. They may be able to provide important insights into whether or not your asset allocation should be readjusted and review any contingency plans you may have already put in place.