The Impact of Elections on the Stock Market & Second Quarter 2016 SummarySubmitted by Miller Premier Investment Planning, LLC on July 21st, 2016
Since the beginning of the year, people have been tuned in to election news. One can only assume that coverage will gradually dominate the social conversation as we move closer to November. There are pundits and statisticians who will try to predict the outcome of the election, and there are forecasters and members of the financial media who will claim to know the market’s next move because it is an election year. To be sure, other theories involving sports teams and mock elections also purport to predict the winner of the election or the market’s response.
One such theory is that the winner of the long-running Scholastic News poll will be the next president. Since 1940, students have correctly chosen the next president with only two exceptions. (In 1948, students did choose Thomas E. Dewey over Harry S. Truman while they chose Richard M. Nixon over John F. Kennedy in 1960.) Considering the average age of this poll’s typical voter, Scholastic has also reported the occasional write-in vote for “Mom.”
While some people might find themselves seeking distance from the drama of political rhetoric, others will be captivated and inspired to vote for the first time. As investors, what conclusions should we draw from all that we see now and going forward?
Instead of attempting to predict outcomes from historical data, we can regard it as what it is: information. Just as with other widely known information, market expectations associated with election outcomes are already reflected in prices. Nonetheless, the returns during and after election years provide an interesting look at presidential terms from a market perspective.
Thus, we present that data for the S&P 500 Index, the MSCI EAFE Index and U.S. bonds (as proxied by Barclays US Aggregate Bond Index). For these election periods, there do not appear to be systematic return patterns associated with either the election of a Democratic or Republican candidate.
Even further, this data indicates that the market does not hold bias for or against any political affiliation and it has not had greater regard for either elected party. While the average historical returns shown for the year of the election and the subsequent year were positive, this does not tell us how the market will react to the outcome of the election in November, knowing that other economic factors also play a role in how each year ends.
Quarter-to-date and year-to-date returns are also shown at the end of this document. If you have any questions, please don't hesitate to reach out to me.
"Students Elect President Obama in 2012 Scholastic Student Vote." Scholastic, October 16, 2012.
The information presented is for illustrative purposes only and is not intended to serve as financial or investment advice. Sourced from Dimensional Fund Advisors. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Actual returns may be lower. Source: The S&P data is provided by Standard & Poor's Index Services Group. Inception date for MSCI EAFE Index: January 1970. Source: MSCI data copyright of MSCI 2016, all rights reserved. Inception date for Barclays US Aggregate Bond Index: January 1976. Source: Barclays data provided by Barclays Bank PLC. Fund return data was obtained from Dimensional Fund Advisors website. Total returns include reinvestment of dividends and capital gains and are net of fund fees and expenses. Custodial and advisory fees are not included.