5 minute read
With the election coming in the next 5 weeks, we know one thing, headlines about stock markets and elections are about to dominate the news feeds.

Several of us are concerned with the election ahead. Could it drag on for weeks and will this impact the stock market? What if Biden wins, won’t there be corporate tax hikes? Is the election going to cause the stock market to crash? These are very common questions that people ask me frequently.

First of all, anyone on TV or that writes eye-popping news headlines is clueless about the direction of the markets like the rest of us. Remember what Warren Buffett says about the stock market. He knows no way to reliably predict the stock market, therefore we should avoid speculating the short-term and invest for the long-term of at least 5 years.

This first table shows each calendar year’s return from the S&P 500 back from 1920-2019. The years highlighted were the election years.

I have a separate chart, not displayed in this email, breaking this table down further by whether a Democratic candidate versus a Republican candidate won the office. It’s quite interesting to see the number of times a Democratic win led to a positive year versus a Republican win, and how that played into the returns. If you are interested in seeing whether the election years above were won by Democrats or Republican Candidates and the pattern of returns, give me a call.

Corporate tax hikes, dramatic elections (although this election could be amongst the top), and fear of stock market crashes during election years is nothing new.

Here’s a table showing the last 4 months of an election year for the last 12 elections.

9/1 – 12/31 during election years
1972: Up 7.17%                                 1988: Up 5.83%                                 2004: Up 8.81%
1976: Up 6.03%                                 1992: Up 6.23%                                 2008: Down -30.49%
1980: Up 12.55%                               1996: Up 14.40%                               2012: Up 2.39%
1984: Up 1.83%                                 2000: Down -13.91%                         2016: Flat -0.71%

There’s quite a bit of green on the board dating back to 1972.

There is no evidence of election years impacting the stock market. In 2000, the internet bubble burst, and followed by that was the tragic memory of September 11. These events were not based on President Bush’s policies. Again in 2008 when the housing bubble burst and the global financial crisis began, this stuff was already before the 2009 start date for President Obama when Lehman Brothers collapsed. In fact by the first quarter of 2009, the worst of the stock market crash was behind us. The next 6 months were followed by a gain of 30.26%.

So, the question most people ask, what should we do to our investment portfolios? Should we take money out of the markets, add money in, rebalance, leave it alone, etc.? This can be answered based upon your unique situation.

Think about this, the stock market is extremely efficient. News travels at light speed these days. The stock market is already pricing in a 50% chance that we have Trump reelected, or that Biden is elected. This is not a surprise to us like the novel Coronavirus was. Therefore, sure, there could be some volatility ahead. However, based on the historical evidence from 1920 through today, we don’t see there is really any correlation between the Presidential election and the path of the markets.

Let me be clear, I’m not predicting that the stock market will go up, nor am I predicting it will go down from here. I’m clueless like the rest of us. I recommend that you look at your financial time horizon and your financial situation. This election year may present yet another buying opportunity for us with a longer time horizon and more aggressive investment profile. If you are closer to retirement, you may want to look at your portfolio and decide if anything needs to be done. You can call me if you have questions or want to run any ideas by me. I’m happy to provide you my two-sense.

We have 5 weeks until the election, and each day that we get closer to the 11/3 date, the news headlines about markets and elections will pop up. If you are worried or looking at this is as an opportunity, you can call me. I’m happy to work with you and discuss your situation to help you make the best financial decision for your circumstance.

Call today at 817-238-6300!

Email at Matt.Ward@NewCenturyInvestments.com

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Matt Ward, CFP^®