HISTORICAL LESSONS ON PRESIDENTIAL ELECTIONS AND THE IMPACT ON ECONOMIC CLIMATE
In the last 100 years, every president who averted a recession during this period was reelected. The results of the election may immediately have an impact on the stock market, but the economy will be impacted by more than a change in the White House. Speculation on nearing market volatility should not impact one's long term asset allocation.
We may not need to draw attention to 2020 being an election year, or the impact of elections on the economy and the stock market. It is evident that the recent performance of one’s investments is a hallmark of consideration according to some. Despite the exasperating newscycle, concerns with a presidential election and its economic effects are common. Fortunately, the data does illustrate that long-term performance is not dictated by a new Commander-In-Chief.
There are some positive patterns. According to the Schwab Center for Financial Research, the S&P 500 Index ended positively in an election year 74% of the time since 1928; with an average return of 7.1%. However, the study also points out that a handful of the election years with negative returns were correlated to other economic events like the Great Depression and the tech bubble burst of 2000.
That observation emphasizes the larger picture. A loss for the incumbent may mean a swift change in expectations and performance for certain sectors. 2021 could bring a different economic stimulus plan, a new approach to corporate tax rates, and a second look at healthcare policies. As investors, we hope to identify the leading factors or indicators that may dictate the next swing in the market, but a presidential election does not stand alone.
This year, the election takes place in the shadow of a global wide pandemic; one that will likely affect the economy much longer than the next four years. The bipartisan conclusion: a well diversified portfolio that aligns with a financial plan will thrive under any president.
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