Election Impact on Stock Market: Investor’s Top Concern

I don’t have an official number here, but I am willing to bet that a GenWealth Financial Advisor is asked about the impact of the U.S. election on the stock market in at least 4 out of every 5 meetings they are in. It’s what has investors concerned.

We’ve had a lot happen. An assassination attempt on a Presidential candidate. The sitting President bowing out of the race, and add to that, the recent market volatility, and it’s understandable that there is some fear about what happens next.

Historical Stock Market Performance in Election Years

The fact is U.S. election years are usually pretty good for the stock market, across the board. Take a look at this graphic from First Trust Advisors. This is a list of every election year since 1928, who won, and the total return of the S&P 500 Index in that year. The Democrats are in blue and the Republicans are in red.

If a Republican was elected in one of those years, the average market return is 15.3%. If a Democrat was elected, the return is 8.5%. And the S&P 500 is up on average 11.58% in all election years, regardless of the outcome. That’s pretty close to the average return in all years. So, an election year does not automatically mean a bad year for the market.

Market Performance in the First Year After Elections

We also know that we will have a new President, since the incumbent is no longer running for re-election. So, what about the first year after an election year??

This graphic, again shows, all the election years on the right since 1928, but shows the S&P 500 return in the year following the election. It also indicates whether the elected President was re-elected or was new.

You can see that the market has performed better when we get a new President, regardless of party. The Index is up 12.6% in that new President’s first year in office, compared to 7.4% if an incumbent is beginning a second term.

Long-Term Market Performance and Economic Growth Under Different Presidents

Finally, let’s zoom out to even larger time frames. This chart, from Invesco, plots every President’s full term since 1957 on a grid. The vertical side of the graph is the performance of the S&P 500. The horizontal side is GDP. That’s Gross Domestic Product.

Generally, this compares market returns to how the economy was doing while these Presidents were in office. You can see there have only been two Presidents whose entire time in office produced a negative stock market return. Richard Nixon and George W. Bush. You can also see that the economy was not growing at a great pace during their terms.

Conclusion: Factors Driving Market Performance Beyond Elections

Bottom line is that there are a lot of factors that drive the market. Election results will not likely drive it for long. What matters more is what a President actually does to stimulate or harm the economy, and world events that can be completely unrelated to who is in office.

The opinions voiced in this video and blog are for general information only and are not intended to provide specific advice or recommendations for any individual.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance. Independent Advisor Alliance and GenWealth Financial Advisors are separate entities from LPL Financial.