Not much gets people charged up as much as politics and religion. And as we are in 2016, on the verge of a Presidential election, I thought I’d talk a little politics. Don’t worry, I’m not going to spout ideology and my beliefs, but rather try to answer that often heard question, “what does the stock market do in Presidential election years?”
Now, that’s not as easy a question to answer as it may seem. Just try Googling the subject. You’ll find volumes of studies, papers, articles and blogs with contradictory findings and opinions. By selecting specific timeframes, qualifying certain data or discounting others, you can probably find a study to support any point of view.
Presidential election cycle theory (yes, there is such a thing) would say that this year the market should be up. According to this theory, the fourth year of a President’s four year term (first and second), aka the election year, is the second best for the stock market. The best year being the third year, and the worst year being the first. This has significantly failed for President Obama’s second term. In its first year (2013) the S&P 500 was up 32.39%, and in its third year (2015) was up only 1.38% (both including dividends).
By the numbers, since the 1928 election (Hoover v. Smith), there have been 22 Presidential elections. In 18 of these years, the stock market has been up. That’s 82%. And the average total return over these years is 11.25%*. However, for the same period overall, the stock market has been up 72% of the time with an average total return of 11.26%. Not a big difference by my count. But, this year is a little special. As President Obama completes his second term, this Presidential election will not have an incumbent. Since 1928, when America had to choose between two new candidates, the stock market has been up 71% of the time but only averaged a 6.33% gain. This situation, however, only has seven data points.
The next question is usually, “which party is best for the stock market?” The general assumption is that the Republicans do more for the market. However, as far as the Presidency goes, it is very much the opposite. Since 1945, the average return under Democratic Presidents has been 9.7% v. their Republican counterparts at 6.7% (price only).**
So, what’s an investor to do? Nothing different than you would during any other year. The Presidential election is just another source of uncertainty that may cause volatility. However, in the long term, it should not affect your allocation. So, talk with your financial advisor and make sure your portfolio is allocated correctly for you and your situation. And not for the year in which we are in. Remember, while Presidential election cycle theory says this should be a good year, the Super Bowl indicator has already called for a down year….
*Dimensional Funds Matrix Book
**S&P Capital IQ
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
Check the background of this investment professional on FINRA’s BrokerCheck.
A Financial Advisor registered through CUSO Financial Services, L.P., Gavin has 25 years of experience as an advisor in the Puget Sound area.
“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship, I can really get a sense of what’s going to work best for them.”
Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.
So what is Gavin’s vision for his dream retirement?
“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”
When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football and taking weekend trips around the Northwest.
Gavin is registered to transact securities business in the states of AZ, CA, CO, FL, HI, ID, IL, KS, MN, NV, NY, OR, UT, VA and WA.
*Non-deposit investment products and services are offered through CUSO Financial Services, LP (“CUSO Financial”) (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Verity Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is not a broker-dealer or Registered Investment Advisor and does not provide advice. CUSO Financial is a subsidiary of Atria.
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