Almost Election Time! Ugh

Almost Election Time! Ugh

Money, religion, and politics you should never talk about with others, or so “they” say.  Well, if you are reading this you know I constantly break rule number one as money is a general theme in these blogs.  I’ll stay away from religion as naturally it has no relevance nor am I any kind of expert on the matter.  That leaves the very visceral and touchy subject of politics. 

“No Andrew, don’t go there.”  Too late, or about to be as that is exactly the topic of today’s blog.  Now I will remain neutral in my distaste for both candidates, like seriously we can’t find that at the end of this term won’t be sub 80 to run for presidency.  Bonkers if you ask me, but these are the cards we voters are left with so happy hunting y’all.

Regardless of who your horse is in this race, it will be emotional, to say the least.  For months we have already been hosting tons of questions on the election and markets.  Figured let’s look at some charts below to sift out the noise and discuss election trends.

Chart 1:

Chart 1 discusses how market volatility increases leading up to an election.  As you can see by November markets get quite volatile and people become anxious.  That said, you can see literally the second the election is over, and we come to the reality of who we have leading this country for the next 4 years, the volatility has a steep decline as investors calm down and revert to their norm.

Chart 2:

For the past 13 elections we’ve had where an incumbent running for reelection the markets have had a solidly positive return, 16% average.  So, although things may be volatile they are generally positive in years like this year, and if the current start to the year is any indication seems things should end the year decently.  Conventional wisdom is these election years have the incumbent greasing the wheels of the economy, so things look as rosy as possible when it is time to hit the polls. 

*Since the writing of this, the incumbent has pulled out of the race. We do expect many of the above comments to continue to apply.

Chart 3:

This third chart above I find super interesting.  Many people intuitively think a Republican pro-business president would lead to the best market returns.  However, as you can see the markets for starters love parody, as the best years are when you have a congress that differs from the presidency, or at least is split.  That said historically the two best outcomes for the markets have been when a democratic president has a split or a republican congress.  We love gridlock and hate uncertainty; this is one other way to prove it.

Chart 4:

Chart 4 predicts what happens the year after an election depending on who is elected.  Since 1977 as you can see the Democratic president in year one has averaged 20.6% while the republican has averaged a 12.3% return.  Heck, I’ll take either of those next year if you ask me!

Chart 5: AKA Bonus Chart

My final chart is a bonus chart, as it really has nothing to do with market prognostication.  Rather, if you want a good sense of who will win the election, as in 20 of the last 24 elections this held true, look no further than the markets.  Whether the S&P 500 is positive in the 90 days leading up to the election or negative determines if the incumbent or challenger has won.  It is far from a perfect science, but certainly should be considered telling. 

No more charts

Well, folks start preparing yourselves for the circus that will undoubtedly become our election this year.  Hope the above does its part in putting some things in perspective at the very least.  In our opinion, the election will have a bigger social impact than a personal financial one.  The world’s greatest companies continue to flourish regardless of who occupies 1600 Pennsylvania Avenue so you should too!

Stay wealthy, healthy, and happy!

*Since the writing of this blog, the incumbent has pulled out of the race. While this may change the political landscape, we do expect many of the comments within this blog to continue to apply.