What Experience Tells Us About Markets and US Presidential Elections

The upcoming US presidential election is my 7th as a professional financial adviser. 

If I have learned anything from the previous 6, it is that, despite the protestations of many to the contrary,  no one has a clue how markets will perform, react or move in the coming weeks.

They may go up, they may go down, they may even stay the same.

What we do know, however, based on nearly a century of data, is that whoever’s name is on the Oval Office door tends to have little real impact on the long term upward trajectory of the stock market.

Source: Dimensional Fund Advisers

At the end of the day, the winner of the upcoming US presidential election is just one of the hundreds, if not thousands, of factors that influence markets—the actions of foreign leaders, a global pandemic, wars, interest rate changes, inflation, rising and falling oil prices, technological advances, these are just a few. 

Last time around

I remember watching the results come in very early in the morning on November 9th 2016. It was becoming clear that, against the expectations of many, Donald Trump was going to be the next president of the United States. 

The futures markets were indicating that the S&P500 was going to open the day down around 5% and many “experts” were predicting far worse by the end of trading. 

President Donald Trump was definitely not viewed as being “market positive”.

US markets actually ended up gaining over the course of the day and the S&P500 went on to add 20% in the next 12 months.

– Red dot represents the day that Trump was elected

Republican or Democrat?

Whether the president is Republican or Democrat also gives little indication as to how markets will fair.

Prior to Trump, the president was a strongly progressive Democrat. Surely not something that markets would like. The S&P500 was up 113% over the eight years from the date that he was elected!

Before him, there was an unashamedly free-market Republican. You would expect markets to be happy about him. The S&P500 dropped 30% over his eight years!

To continue with the North American theme, go figure!

Anyone who made their personal investment decisions based on the policy statements of either of these presidents would have done real and lasting damage to their retirement plans. 

Don’t make it personal

Whether we like or dislike the president (or any politician for that matter) should have zero bearing on our investment decisions.

I know that this can be difficult but it is incredibly important.

Take it from America’s most famous investor, Warren Buffet:

“If you mix politics with your investment decisions you’re making a big mistake”

Conclusion

Stocks have rewarded disciplined investors for decades, through Democratic and Republican presidencies. 

However, trying to predict where markets will go in the short term is an exercise in futility.

A well-crafted globally diversified investment portfolio is one that is built to weather and absorb the political noise.


Thanks for reading!

If you enjoyed this post or if you learned something new, subscribe below to get my future posts sent directly to your inbox.

* I won’t send you spam, I promise (I hate it too). You can unsubscribe at any time.

By Ross Naylor

Ross has been a financial adviser for the past 26 years. He uses the experience that he has gained over this time to help busy expats to understand their options, make smart decisions and avoid costly mistakes.