Every 4 years, the United States presidential election brings the opportunity for new policy, laws and foreign relations. While some may be more radical than others, this change in leadership does affect the economy, stock market and specifically, your portfolio.
Looking at the performance of the S&P 500 over the past 90 years, a few trends have been noted.
On average, both the equity and bond market saw a more muted performance in the year leading up to the election, than usual. Specifically, analysts saw equities gain about 8.5% over any 12-month period, but in the year leading up to the election, gains averaged less than 6%. On the other hand, bonds usually averaged returns of 7.5% in any year period but leading up to the election, bonds returned around 6.5%.
After an election, the stock market tends to perform weaker in the following year while bonds tend to outperform after the election. There does not seem to be a big difference between which party takes office, rather if there is a change in control.
When a new party does come into control, analysts found that the stock market gained an average of 5%
If the same party/president retains control, returns are slightly higher, averaging about 6.5%.
Eric Freedman, CIO at U.S. Bank, says “economic volatility from public policies tends to be contained within specific industries rather than affecting the general economy.”
For example, the government’s healthcare policy is always subject to change depending on who retains control. As a result, the healthcare sector tends to show increased volatility in the lead up to a presidential election. Since the implementation of healthcare policies are largely driven by legislators, a new president’s policy will most likely only advance if the same party retains control in Congress.
Another debated topic is the energy sector due to differing stances by the two parties - one focused on domestic energy production and the other looking to go “green.” For example, post Biden winning the election, FirstSolar (US solar manufacturer) saw a 10+% increase in value.
It is recommended that investors keep an eye out and reevaluate their holdings based on how policies pushed by new presidents might affect the global and domestic economy.
Watch this short video made by our head of business development RJ Assaly, to understand the impact elections have had on the stock market.