While US presidential elections can have worldwide significance, historically, the result has not had much impact on investment markets.
Headlines are dominated by the US presidential election being held on 5 November. With candidates offering such differing policies, we wait to see who will be in the White House next year.
Investors may be concerned about what impact this could have on their portfolio but are best advised to try and tune out the noise and remain focused on their long-term investment strategy and goals.
Looking at history, US election results do not have a significant impact on stock market performance. There is little evidence that one political party tends to be better for markets than the other.
S&P 500 index performance by US President
Deutsche Bank Research has analysed the annual returns of the US S&P 500 index under all political administrations as far back as 1901*.
Reassuringly, the index performed well, providing annualised double-digit returns, under most Presidents, regardless of their political leanings. For over 100 years, there have only been three exceptions and only one significant one. Arguably, the downturns were mainly caused by events outside the President’s control and not a direct result of their policies.
The only three cases where the index produced annual negative returns were the 28% decline under Herbert Hoover whose term included the Great Depression; Richard Nixon who saw a 1% decline thanks to the 1973 oil shock, and the 4% decline under George W Bush when the aftermath of the dot.com bubble was followed by the global financial crisis.
Otherwise, 13 out of the last 15 Presidents saw the S&P Index provide annualised returns of between 10% and 17%. Prior to that it rose 29% under Calvin Coolidge, and between 3% and 6% from 1901 to 1921.
Please note, US market performance does not necessarily reflect actual investment performance, and it is also not possible to invest directly into an index.
The Deutsche Bank Research analysts who conducted the survey, Jim Reid and Henry Allen, concluded:
“So it’s possible to argue that it’s better to be lucky than good. And events are more likely to dictate big-picture market performance under the next President, with policy probably playing a smaller role.”
Focusing on the last two administrations, the S&P 500 provided an annualised 16% return over Donald Trump’s term from 2017 to 2021, and 14% so far under President Biden. This year to date (31 October), it has risen over 22.5%.
Election years themselves are not usually noteworthy. Since 1927 the S&P has produced similar returns in election years as in non-elections ones.
Where we may see an impact of one President over another is in how specific market sectors perform. For example, health care can perform better under a Democratic administration, while defence and industrial stocks did well when Trump was in the Oval Office. But if you have a suitably diversified portfolio, this should not be significant for you.
A long-term investment approach
Although US elections can be emotional affairs – we are impacted even living on the other side of the Atlantic and having no say in the vote – historically, US election results do not have a significant impact on stock markets and your investments.
Markets tend to be forward-looking and price in expectations of different outcomes. While many factors can influence long-term performance, particularly unexpected global events and investor fear, Presidential elections are not usually one of them.
It’s hard to escape the constant news around the US election campaign. But whether you’re following it closely or not, it’s best to keep it separate from your investment decisions. Emotional reactions can lead to impulsive moves, so it’s important to stay focused on your long-term goals and objectives.
While you should review your portfolio annually to establish if you need to rebalance it or adjust it for your changing circumstances, you are usually best advised to avoid knee-jerk reactions (whether the news is good or bad). Remember that time in the market usually provides better, more reliable results than trying to time the market. Missing the best-performing days can make a considerable difference to returns.
Working with a wealth management adviser like Blevins Franks helps you keep on track and avoid emotional reactions that may impact your overall longer-term returns.
At Blevins Franks, when working with our clients to build their portfolio, we follow a simple, disciplined process.
We start by clarifying your main financial objectives. Next, we’ll work together to develop a plan to achieve these goals, and finally, we’ll build a well-diversified portfolio to support your plan. As part of this process, we use an academically designed suitability assessment to understand your attitude to risk. This helps us balance your potential returns with a level of risk you’re comfortable with, so you can reach your goals with confidence.
Having put the plan in place, we use good quality investment managers to make investment decisions on a day-to-day basis.
Contact us to learn more about our investment approach and how we can help you.
*Since the current S&P 500 index was introduced in 1957, data prior to that are estimates based on calculations by Global Financial Data.
These views are put forward for consideration purposes only as the suitability of any investment is dependent on the investment objectives, time horizon, and attitude to risk of the investor. The value of investments can fall as well as rise, as can the income arising from them. Past performance should not be seen as an indication of future performance.
