Election Years and the Market
Every election year I hear the same comments: “If so and so wins I’m moving to Canada!” “This Country will be ruined if so and so gets in!” “The stock market will collapse if so and so wins, I’m selling everything!” No matter who is running you’ll have Republicans, Democrats and Independents saying negative comments about their opponent to try and knock them down a notch or two. This election year is no different and with both Party Conventions just finishing up the election is again in the major spotlight. I’d like to take share with you some facts about election years and presidential cycles in this short article.
When surveyed, people in general believe that a Republican President will be better for their investments. In fact, 43% of people think a Republican will serve their investments better compared to 24% of those surveyed who think a Democrat will be better and 32% saying it doesn’t matter. When you take a look at the S&P 500 average annual return (1/20/1961- 12/31/2015,) the average under a Republican President has been 8.71% versus 13.29% under a Democrat President. That is quite a difference, but just how much control does a President have on the stock market? When asked 14% said no control, 23% said a lot of control but the majority of people, 64% said little control. I would agree that the President has little control of the markets. What does effect the stock markets are factors like company profitability, interest rates, global markets and investor confidence and expectations. These factors play much more of a role as to which way company’s share prices may go. Yes, governments can control policies like taxes, export/import laws and other regulations, but bottom line companies and business owners are out there to turn a profit. Regardless of the policies put in place by the government they will find ways to increase the bottom line. That’s why America is such a great place to live!
Elections can cause investors anxiety, but how much can that cost an investor over time? Let’s say a hypothetical investor had invested $10,000 in the S&P 500 on 12/31/60 and they elected to move to cash every election year due to concerns about the outcome. Their ending value as of 12/31/15 would be $1,136,820. Now, what if they elected to not move to cash and stay fully invested during election years? Their ending value would be $1,894,374. Quite a difference! Had they choose to add $2,000 to their investment every election year they would have accumulated a whopping $2,869,460! You can see the big difference and what the cost can be to an investor who panics and lets emotion be his or her guide. Of the last 14 election years the S&P 500 has ended positive 12 times. Most won’t believe that fact, but it’s true.
The world is a crazy place and the headlines never seem to stop. There will always be reasons not to invest. Try to step back and take each doomsday headline with a grain of salt. Government shutdowns, Ebola outbreaks, oil prices collapsing, terrorism and Brexit are all recent headlines that now seem to have been lost in the news media storm. Remain focused on your long-term goals, maintain diversification with your investments and lean on your advisor to put current events into perspective. Please feel free to contact the advisors at Peterson Wealth Services if you have questions more specific to your situation. 801-475-4002.
By Shaun Peterson, Financial Advisor, CDFA®
*Statistics from The Hartford Funds “Campaign for Your Future” brochure. Published 2016.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Shaun Peterson and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Diversification does not ensure a profit or guarantee against a loss. This is a hypothetical example for illustration purpose only and does not represent an actual investment.