Blur or Red…does it matter to markets?
To counter anxiety around the election uncertainty, it’s worth noting that while you may have a political preference, markets doesn’t play favourites, and history shows it doesn’t perform better under any one party. Stocks have performed well under both blue and red regimes – the best returns, incidentally, occurred under the F. Roosevelt, Clinton, Eisenhower and Reagan administrations.
Since 1930, the average annualized price return (excluding dividends) of the S&P 500 was 9.6% when a Democrat won and 5.7% when a Republican won. But over a longer period, results for both parties are similar, with the S&P 500 returning around 7%.3 Under Trump and Biden, despite appearing worlds apart on policy, the S&P 500 returned 14% per year under each president.
Despite these facts, it’s understandable that the turmoil of election years increases the risk of unnerved investors changing their portfolio based on perceived strengths of the candidates and/or who they think will win. Taken alone, emotional investing and trying to time the market are poor strategies. Together they can be lethal for your investments, especially when the hyped political rhetoric doesn’t match reality.
Of course, the two candidates’ efforts to effect change are not futile – and there are sectors worth considering. Trump, during his time in the White House, reduced the corporate tax rate from 35% to 21%, supported fossil fuel industries over green energy, and displayed a light touch when it came to regulation. Harris, on the other hand, is reaching out to the middle class, wants to reduce consumer pricing, would increase corporate taxes, continue the Biden administration’s focus on climate change, and likely tighten regulation.
The energy debate, in particular, offers a cautionary tale about shaping your investments based on these differences. Under Trump, fossil fuel industries produced mixed performance, while under Biden, despite fears of increased regulation and diminishing returns, those sectors thrived.
Staking your investment choices on policy promises may be folly but that’s not to say investors should shrug off concerns about the impact of the election result on certain investments.
The bottom line is that market performance, as shown by the numbers, is affected less by elections and more by economic fundamentals. A gridlocked political system in the US, where different parties control the Senate and the House, would cement that. The rhetoric and direction of the US Federal Reserve and the Bank of Canada, for example, are more significant for investors.
Long-term retirement goals require long-term planning, not knee-jerk reactions to election campaigns or results. A Q Wealth advisor can help you build the right plan for you and help you stay the course amid the election noise. This horror movie is reaching its third act – don’t let emotion interfere with your investments.
1 Source: Global Financial Data, as of 02/01/2024. The S&P 500 Total Return Index is based upon GFD calculations of total returns before 1971. These are estimates by GFD to calculate the values of the S&P Composite before 1971 and are not official values.
3 Source: Morningstar Direct, Edward Jones
