How Do Elections Impact the Markets?

 

October 20, 2016

 

JER WW PHOTOAs Tuesday, November 8 nears, nerves are worn thin. Even in the rough-and-tumble of American politics, this year’s election season has been spirited, to say the least. A few swing states may determine whether the next president is Democrat or Republican. And it’s possible the Senate could end up split 50/50, with the vice president having the tie-breaking vote. True believers on each side say that if their opponent wins, we’re doomed. People in the middle wonder how things got so polarized.


An unfortunate side-effect of this toxic environment is that it can make you worry over your investments, and what will happen after one side prevails. A little concern can be a healthy thing, but when worry takes over it can drive emotional decision making, which is the antithesis of good investing practice.


Here are some points to keep you at ease in these contentious times:


Regardless of who wins the White House, our system of divided government (combined with a closely divided electorate) will limit their power, as it is designed to do. There are three branches of federal government—executive, legislative and judicial. Apart from foreign policy and executive order, the presidency is primarily a high profile position from which to advocate an agenda. Because of such checks and balances, history has shown that presidential elections, in and of themselves, have little-to-no long-term effect on the stock market.


Of the last twenty-two presidential election cycles going back to 1928 (spanning 84 years), the U.S. stock market was in positive territory 18 of the 22 election years. In the year following the election, the markets were in positive territory 54.55% of those years. This means that the election cycle is little better than a coin toss at predicting what markets will do the following year. And regardless of who occupies the White House, the stock market has been positive 68% of the time since 1928.

 

The takeaway is that time in the market is more beneficial than timing the market. Keep that in mind as you watch the election returns.


Keep this in mind as well: In becoming the strongest nation on earth, the U.S. has survived tougher challenges than the 2016 election. Think about the Civil War, or the Great Depression. But emotions do run high at present. That is exactly the time when you need to guard against rash decisions. If you have concerns you’d like to discuss, let us know.


Through many years of experience, we at PARTNERSINWEALTH have found that those with a comprehensive financial plan have a view into their financial future that gives them the long-term perspective critical to success. This mindset builds confidence and tempers the desire to react to the latest volatility. If this mindset is something you want to obtain, please contact your PERSONALCFO or Jim Waters, CFP®, at 713.964.4028 or jrw@partnersinwealth.com.