In this 2-part blog series, we’ll review:
- Some relevant historical data around markets in an election year
- Markets after a democratic or republican win
- We’ll look at where there may be some strategic opportunities for repositioning investment allocations
Watching the US election can feel like a horror movie, full of scares and heart-in-mouth moments. Yet despite all the petty slogans, bitter rhetoric and big economic promises, it’s easy to overestimate the impact an election – or US president – has on portfolios.
There is no doubt, however, that the current campaign is anxiety inducing for investors. Canada may be gearing up for its own divisive political battle, but its noisy neighbour is a behemoth that dominates news cycles. And just like a good horror film, these stories are full of jumps and nerve-shredding moments. It’s only human, therefore, to get caught up in these feelings.
The assassination attempt on Donald Trump, the Joe Biden debate disaster, and the dramatic impact of his replacement, Kamala Harris, have bred uncertainty. An election by its nature is unpredictable, of course, but history tells us the equity market’s behaviour during election year often follows a pattern.
Whichever party wins, the first half of the year tends to feature muted returns followed by stronger returns later in the second half, once the outcome is known. As of August 27, the S&P 500 is up more than 19% and another bull run is well under way but that more likely reflects a growing confidence that the US Federal Reserve will cut rates, rather than excitement at Harris or Trump moving into the White House.
Despite the drama and plot twists over the years, since 1928 US equities have posted positive presidential election-year returns more than 83.3% of the time, with an average return of 11.4%1. Once the victor has been established (and especially if the Fed does cut as expected), some analysts expect things to get even better. Since 1948, stocks posted higher returns in the period after election day 63% of the time2.
In the second and final part of our US election investment series, we will explore what both a blue or red victory could mean for markets and the investment opportunities that may present themselves on the road ahead.
Check out the link for part 2 below.
