Every four years, our friends down south take to the polling stations to determine the future leader of their country. American and Canadian investors alike will be watching closely, asking: how will the election affect the stock market? Many will speculate, and many will be burned as the financial markets adapt to the outcome. To avoid being burned, you must make informed decisions, and in order to make informed decisions, it is critical that you approach the election with the right mindset.
Key Things To Remember:
1) Try your best to remove political expectations from your investment decisions.
2) Do not try to predict market movements during the US election.
3) Remember that the stock market goes up on average over time, no matter which party is in power.
How Does The Election Affect The Stock Market
According to a report by First Trust Portfolios using data pulled from Morningstar, the market has been positive overall in 19 of the last 23 election years from 1928 to 2016, only showing negative returns four times.
| Year | Return | Candidates |
| 1928 | 43.6% | Hoover vs. Smith |
| 1932 | -8.2% | Roosevelt vs. Hoover |
| 1936 | 33.9% | Roosevelt vs. Landon |
| 1940 | -9.8% | Roosevelt vs. Willkie |
| 1944 | 19.7% | Roosevelt vs. Dewey |
| 1948 | 5.5% | Truman vs. Dewey |
| 1952 | 18.4% | Eisenhower vs. Stevenson |
| 1956 | 6.6% | Eisenhower vs. Stevenson |
| 1960 | 0.50% | Kennedy vs. Nixon |
| 1964 | 16.5% | Johnson vs. Goldwater |
| 1968 | 11.1% | Nixon vs. Humphrey |
| 1972 | 19.0% | Nixon vs. McGovern |
| 1976 | 23.8% | Carter vs. Ford |
| 1980 | 32.4% | Reagan vs. Carter |
| 1984 | 6.3% | Reagan vs. Mondale |
| 1988 | 16.8% | Bush vs. Dukakis |
| 1992 | 7.6% | Clinton vs. Bush |
| 1996 | 23.0% | Clinton vs. Dole |
| 2000 | -9.1% | Bush vs. Gore |
| 2004 | 10.9% | Bush vs. Kerry |
| 2008 | -37.0% | Obama vs. McCain |
| 2012 | 16.0% | Obama vs. Romney |
| 2016 | 12.0% | Trump vs. Clinton |
Data Source: Morningstar
How Do Markets Perform Under Different Administrations?
Markets tend to do well under all administrations with slight variances. Ben Carlson CFA, a prominent wealth blogger, shared this chart in a recent blog post highlighting long-run returns. The chart shows how $1 would have grown over time under various political environments.
How To Manage Your Investments During An Election Year
Should you make changes to your asset allocation during an election year or after a new president is elected? Probably not. Focusing on what you can control is key when investing for the long-term. Even if the market is caught off-guard by the election results (as evidenced in 2016 when President Trump won), the shock will likely be temporary. It can be hard, but it’s really important not to allow personal feelings about politics interfere with your financial plan.
The Information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results.
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