For those of us who have experienced more than one or two presidential election cycles, the 2016 campaign seems to be more heated and contentious than usual. The stakes are high for the economy and financial markets, as new political leaders will need to address a wide range of pressing issues.
While political decisions can and do have long-term impact on measures of U.S. economic performance, we need to remember what University of Chicago Professor and former chair of the President’s Council of Economic Advisors Austan Goolsbee said:
“I think the world vests too much power, certainly in the president, probably in Washington in general for its influence on the economy, because most all of the economy has nothing to do with the government.”1
While government may have some impact, the majority of companies will adapt and
advance regardless of which political party controls the Oval Office.
But what about returns during election years? Since 1928 only four presidential election years saw negative returns. But before you attach any significance to that, realize that the average return on the S&P 500 during only the election years was slightly lower than the average return in all the years from 1928 to 2012.2
In our winter issue of 360 Insights we looked at whether stock returns were higher with a Democratic president or with a Republican president…it turns out (at least from a stock market perspective) that the party affiliation of the next president doesn’t have much of an impact one way or the other on returns.
So before you make changes in your portfolio, keep in mind that historically, the stock market has not been particularly influenced by whether Republicans or Democrats have won the White House. And your long-term goals should never depend on which party or candidate wins an election.
1Freakonomics Podcast 3/29/2012: “The Power of the President — and the Thumb: Full Transcript”
2United States Elections Project; Data Source: DFA Returns 2.0