At times, some clients become quite concerned about election results and which party will supposedly be in charge for the next four years. Perhaps this is your feeling also. I am sure there will be exceptions, but my response is always that the political situation is not as important as one might think.
Right now, there are at least 48 percent or more voters who are disappointed, if not disgusted, by having Donald J. Trump become the 47th president of our republic. In 2016 and 2020 there were also about the same percentage of voters disappointed. So what has been the effect upon stock market indexes? We will use the S&P 500 index as our measurement.
In 2016, polling indicated that we would see President Hillary Clinton. In the period from the end of August through election day, the S&P 500 index had lost 1.5 percent. Most people, including me, were surprised by Trump’s victory. If that occurred, we were told that the markets would plummet. Instead, in the next four days, the index rose 1.16 percent. By year end, it had risen by 4.4 percent and 2017 was a good year for stocks.
In 2020, uncertainty reigned supreme and in the 60 plus days since August 31, Mr. Market lost 3.8 percent. Pundits also claimed that the stock market would plummet if Mr. Biden won the election. However, in the following four days in which Joseph Biden was announced the winner, the index jumped up 5.51 percent. It finished the year higher by over 11 percent from election day.
In 2024, polls informed us that the election was again a toss-up. From August’s end through election day, the index had risen by 2.31 percent, better than the losses of the prior two election run ups. In the following four days through Monday, it added another 3.81 percent gain. I am not a betting person, but the recent trend would suggest the upward movement will continue through December.
Just to see, I also considered the elections of 2008 and 2012. In President Obama’s first term, we were still suffering the effects of the mortgage meltdown and the S&P 500 fell over 39 percent after election day until the ultimate bottom was seen on March 9, 2009. But in the more normal 2012 period, the same upturn occurred and 2013 was good for stockholders.
Therefore, my point is that stocks are not well correlated with which party wins the White House race. Also, the long term charts show that those who become fearful and sell their stocks in advance of elections lose most of the investment gains that occur. This is why I often remind folks that one cannot determine a hilltop until he or she is crossing over it and trending downward. Whenever I think I know how markets should or will respond, I am usually sadly mistaken. That costs real money.
My advice? Do not think you are wiser than Mr. Market. Carefully watch instead what is actually happening. Right now, the indicators are positive.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)
(Statistics from Worden Brothers, Inc., TC2000, 2024.)