If you are viewing the upcoming presidential election with trepidation, you are in the majority among investors. Betterment reports that 57% of investors surveyed say they are feeling anxious about the election. Forty percent say they expect to switch or liquidate investments based on the outcome. But history shows that (a) these anxieties are unwarranted and (b) it will be unwise to get out of the market if the vote “goes the wrong way,” according to whatever your political leanings are.
General Election Years and Markets
BlackRock reports that since 1926, the S&P 500 has gained an average of 11.6% in election years, slightly higher than the 10.3% average for all years. Vanguard reports a negligible difference in the performance of a classic portfolio of 60% stocks and 40% bonds under Republican and Democratic presidents. Since 1860, the average annual return has been 8.1% with Republicans in the White House and 7.7% with Democrats.
This Election is Different…
But wait, you may be saying, this election is different. Do you mean that it is the most important election of our lifetimes? That has also been claimed about many other elections during our lifetimes. From opposite sides of the political spectrum, Bernie Sanders and Ralph Reed both said it in 1996. Ezra Klein, writing in Vox, reports that he heard the same talk about the 2004 election, but in his view the 2000 race was actually the most important. Robert Tracinski in The Bulwark awarded the “most important” designation to the 1972, 1980, and 2004 elections. In 2016 Evan Berryhill acknowledged in The Hill that people always say it is the most important election in a generation, or in our lifetimes, or ever, but maintained that this time, it might really be true. None of these comments represented anything new. The Vermont Chronicle called the then upcoming 1864 presidential showdown “the most important election in the history of this nation.”
In short, the record indicates that you cannot win by ducking election years or by favoring one party over the other in a strategy of being in the market or out of the market, depending on whether the president is a Democrat or a Republican. You can definitely lose, however, by being out of the market on the grounds that you do not like who is in the White House. Since 1987, MarketWatch reports, the year’s entire gain or loss has occurred in just 3.1% of the entire year’s trading sessions. If you wind up being out of the market on those days, you will be out of luck as far as sharing in the gains during up years.
Sector and Stock Picking Based on Political Party Victory
By the way, do not get carried away with stock picks based on the political platform of the candidate you expect to triumph in November. Jeff Sommer of The New York Times notes that Joe Biden strongly advocated renewable energy, while Donald Trump favored fossil fuel producers. Yet the iShares Global Clean Energy ETF performed far better during Trump’s term, at 26.6% annualized, than during Biden’s, at -19.8% annualized. Counterintuitively, as well, the SPDR S&P Oil & Gas Exploration and Production ETF returned an annualized -19.3% under Trump and an annualized 26.9% under Biden.
Source: Bloomberg Professional Services and ChatGPT Visualization
The Bottom Line
It is not wise to base your investment strategy on your expectation regarding the outcome of this coming November’s election. Neither should you cast your vote on the basis of which candidate you think will be better for stocks. When America goes to the polls, somebody has to come out the loser. Do not let it be you.
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