Elections and Financial Markets
The Elections Are Over... Now What?
Presidential election years and the following first year of a presidency present a lot of questions. This uncertainty leads to anxiety and fears along with volatility in financial markets. Financial markets like predictability of future events. So what does this all mean for your portfolios and financial plans? Here are our thoughts.
From 1926-2013, the average return of the S&P 500 in the year following an election is +9.3%. (Chart Credit: Dimensional Fund Advisors)
Since 1900 the first year following the election of a Republican president, with a Republican majority in the House and Senate, has shown an average return in the S&P 500 of +11.1%. (Chart Credit: BMO Investment Strategy Group)
There appears to be no significant correlation between presidential party affiliation and the annualized return of the S&P 500. (Chart Credit: Dimensional Fund Advisors)
US Equities have experienced long-term appreciation, regardless of who is in the White House. (Chart Credit: Dimensional Fund Advisors)
Historically, volatility in equities has increased substantially 30 days prior to an election, and increased volatility continues for 60 days after the election. (Chart Credit: Blackrock)
Investors should experience higher returns as compensation for greater price fluctuations (volatility). Equities have shown a higher historical average return compared to bonds as a result of this dynamic. Volatility has been amplified around presidential elections. Several studies have shown that timing the market is impossible to do consistently. In our view, staying invested in equities, adhering to a systematic rebalancing schedule, and minimizing fees will maximize portfolio value long-term. During volatile times, it is important to maintain course with your long-term portfolio objectives and financial planning goals. Disclaimer: This publication has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Past performance is not a guarantee of future performance. Please speak with a qualified financial professional to address your specific financial needs.