US President Elections and Stock Market

US President Elections and Stock Market

Investors the world over are wishing for the outcome of the US election, as trillions of dollars of stack hinge on that. A big stimulus package in the US is seen as favourable for emerging markets, such as India.

It becomes apparent that year three of a president’s term is usually the strongest year for the market, followed by year four, then the second, and first. It is kind of a known fact that the impact that any president can have on the economy and market depends on their ability to pass legislation and to be able to put in place more crucial policies, taxation, spending and regulation and finally control of both the House of Representatives and the Senate is necessary and both of these races currently look tight. As per market observation when a new political party comes into power, the analysts found that stock market gains averaged 5 % however if the same president is re-elected or if same party retains control of the White House, returns were slightly higher, at 6.5 %. There is a stronger chance of the Democrats i.e. Joe Biden winning a majority in the Senate implies higher fiscal spending, one can believes that one should brace for a transient selloff in US equities and fall in the US dollar, but gold and silver prices may get increase, helped by a tumbling dollar and concerns of higher fiscal spending and potentially rising inflation. It is also expected that base metal prices to move up as the US-Chinese relationship stabilises and the market starts pricing in a probable trade deal.

There is strong belief that markets in emerging economy like India will continue a positive bias, and that has been seen that in spite of the volatility, Indian markets have been better performing based on positive and better Sep-2020 quarter numbers as well as the improvement seen in the macro indicators like the GST collection, vehicle sales, people spending in festive season etc. If you are a long-term investor and if there is a bit of a dip at some stage, it will be an opportunity for one to accumulate and start building a portfolio.

However as per majority of investment houses – The problem with investing based on such data patterns is that it’s not a sound way to go about making investment decisions. It sounds exciting, and it fulfils a belief that many people have that there’s a way to “beat the market.” But it’s no guarantee. There are too many other forces at work that affect market conditions.

Election Year Stock Market Returns –

Here are the market results for the S&P 500 for every election year since 1928. Data below is from Dimensional’s Matrix Book 2019. source : https://www.thebalance.com

S&P 500 Annual Stock Market Returns During Election Year

YearReturnCandidates
192843.6%Hoover vs. Smith
1932-8.2%Roosevelt vs. Hoover
193633.9%Roosevelt vs. Landon
1940-9.8%Roosevelt vs. Willkie
194419.7%Roosevelt vs. Dewey
19485.5%Truman vs. Dewey
195218.4%Eisenhower vs. Stevenson
19566.6%Eisenhower vs. Stevenson
19600.50%Kennedy vs. Nixon
196416.5%Johnson vs. Goldwater
196811.1%Nixon vs. Humphrey
197219.0%Nixon vs. McGovern
197623.8%Carter vs. Ford
198032.4%Reagan vs. Carter
19846.3%Reagan vs. Mondale
198816.8%Bush vs. Dukakis

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