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Investing and Elections

As if 2020 wasn’t going to be memorable enough, we are now just several weeks away from the election.

Most people agree that elections are significant and have consequences that are felt for years to come. Many investors feel the need to follow the polls closely and adjust their portfolios based upon who they suspect will win and how the market will respond.   

We believe that making a change to your portfolio based on who wins or is expected to win an election would be a mistake. Below we outline some past election information that supports our case.   

Just the Data

Many people have their political allegiance tied into their identity and this can cause political issues to become very personal and emotional. With investing, it is best to try to remove emotions from the decision-making process and make the best decision based upon the information and evidence available. The alternative is to let your emotions guide your decisions, which looks like the top of the chart below.

We have felt many of those emotions just this year, but we strive to behave like the successful investor. That said, let’s look back at the past 23 presidential elections.


As you can see in the image above, 19 of the past 23 election years were positive as measured by the S&P 500 index. In the negative years, we find that all of them had significant issues, other than the election, that likely played a much larger role than the election itself.

1932 (-8.2%) – The Great Depression                      1940 (-9.8%) – Start of World War II

2000 (-9.1%) – Dot Com bubble burst                      2008 (-37.0%) – Financial Crisis

We don’t see any evidence that election years themselves are poor years to be invested, so we started to look at the returns under each administration. The next exhibit illustrates more recent administrations and their political parties, again looking at the S&P 500 index.

There is not a discernible trend that would tell you it is good to be invested under a Democratic administration (blue) and bad to be invested under a Republican one (red) or vice versa. In fact, if you again consider outside factors (such as the dot com bubble, 9/11, or the financial crisis), you can see how those events impacted the returns of specific administrations.

A few thoughts:

  • The stock market did great when Bill Clinton was in office, but Congress was primarily Republican led by Newt Gingrich. Who gets credit?
  • George W. Bush took office in the aftermath of the dot com bubble bursting and then the market moved lower after 9/11. Who is at fault for the market decline?
  • Barack Obama took office when the market was at its low point and Congress was split with some years of Republican control? Again, who gets credit?

Generally speaking, we believe presidents should get neither credit nor blame for stock market performance during their presidency. There are too many other factors.  

If we go back even further, we can see more evidence for the lack of a trend.

We can see that over time markets tend to go up. This makes sense when you break the market down into a collection of individual companies. Each company is going to make the best decisions they can to make a profit (which in turn leads to shareholder value). To make informed decisions, companies have to navigate a combination of issues from positioning their product, to what the competition is doing, to corporate strategy and even politics; but politics is a small part of the equation. And we would argue that each part of the equation, when publicly known, will nearly instantly be reflected into the stock price of the company, including predictions about future changes to each part of the equation. For example, a company that sells electric cars will already have the predictions about the impact of a new administration and their position on electric cars, priced into the company’s valuation (stock price) by investors well before the election takes place.


If the party in control of the White House does not have a discernible trend around market returns, perhaps the party in control of Congress does. The chart below illustrates the growth of a dollar invested in the S&P 500 index in January of 1926 through December of 2019.

Once again, we cannot see a trend that would say that one party in control of Congress is bad and the other party in control of Congress is good.


Humans naturally look for trends and patterns but there are not any actionable patterns around politics and the markets. Politics do introduce unknowns and volatility in the short-term, but that is normal market behavior and unavoidable. In the long-term, companies in a free market will adapt to a shifting political landscape in order to continue to be profitable, which is evident in the performance of the S&P 500 index regardless of the party in control.

There will be a lot of people on TV over the next few weeks that claim to know what is going to happen with the markets, but we do not recommend investing your money based on the advice of investment gurus.  

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: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.