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Is There a Correlation Between the Presidential Elections And The Stock Market? Thumbnail

Is There a Correlation Between the Presidential Elections And The Stock Market?

Election years are known for lies and accusations of corruption. The 2020 election has demonstrated to be one of the most contentious in recent history. However, contention in politics is nothing new. Since the time of Jefferson v. Adams to this year's Biden v. Trump, accusations have always been made, mud has always been slung, and a lot of Americans find themselves unsure of a future under a new (or unchanged) leadership.  

Though Jefferson and Adams didn't shy away from public debates and printed ads, there is a lot of difference in today's political climate. Today's presidential candidates and their correlated political parties have the ability to overwhelm Americans with their messages. These messages are passed through communication channels like radio announcements, social media, email blasts, television ads, and phone calls. They have 24/7 access to constituents.  

Put this together with the fact that 2020 has been an extraordinary year, we have an election like never before. 

A Reminder About Emotionally Driven Investing

Whether you have seen others partake in it, or you have been guilty of it yourself, social media platforms like Facebook and Twitter make it extremely easy to share misguided, damaging, or opinionated messages. That is the case in a general sense, but it is even more effective when posts are about politics or political candidates.  

The problem is that being overwhelmed repeatedly with information about the political future of our country (especially scary and alarming information) can affect anyone listening or watching. I’m sure you’ve heard the predictions - “If Trump wins, the stock market is sure to tank.” or, “If Biden wins, the stock market is sure to tank.” Everywhere you turn, people are making an argument for it either way. 

As an investor, try as much as possible to drown out the noise, think of how to meet your personal financial goals and contact your investment advisor regularly. He or she is there to give the unbiased advice needed to stay on track when it comes to organizing your portfolio for possible changes in political leadership.  

Historical Stock Market Performance During Election Years

Past performance is not an indicator or guarantee of future performance. However, as an investor, you might want to see how the stock market performed during and after of presidential election years. Below is a chart of S&P 500 returns since the 2000 election:1  

Election Year
Presidential Candidates 
Performance During Election Year 
Performance For Following Year 
Bush v. Gore
Bush v. Kerry
+10.88% +4.91%

Obama v. McCain

Obama v. Romney
Trump v. Clinton

Additionally, the chart below depicts the S&P 500’s percentage of return through a president's full term dating back to 1981. The information was put together from YCharts and presented by Forbes:2

S&P 500 Return
Donald J. Trump (R)
2017- +43%
Barack H. Obama (D) 2009-2017
George W. Bush (R) 2001-2009
Bill J. Clinton (D)
George H.W. Bush (R)
Ronald W. Reagan (R)

According to history, there have been numerous outside factors that determine the stock market's performance. The party in power is just one of them. The other factors include business cycle, if we're in a bull or bear market, trade wars, civil unrest, changes in tax policy, and more. 

If you're worried about your portfolio's future because of the upcoming election, speak with your financial planner or investment advisor. He or she may be able to provide vital insights on readjusting your asset allocation if needed, and a review of the contingency plans you may have put in place.

  1. https://ycharts.com/indicators/sp_500_total_return_annual
  2. https://www.forbes.com/sites/sergeiklebnikov/2020/07/23/historical-stock-market-returns-under-every-us-president/#2046fd9efaaf

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.