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As we roll into the 2020 presidential election, you may be anxious about the market and the state of our economy. It doesn’t help that each election year, both parties state their cases for why their opponent’s party wouldn’t be good for the economy and the broader markets.

Before diving into recent data, investors should know this topic is nothing more than white noise. Instead of trying to manipulate your portfolio based on what you believe the election outcome will be, focus on what will make a meaningful impact.

Market volatility frequently increases 6-months before a presidential election. The chart below illustrates the S&P 500’s performance 6-months before election night for the last 12* elections.

Source: Y-Charts (DeepInTheTrenches.com)
*performance from 5/3/2020 through 9/16/2020

The average S&P 500 performance in the 6-months leading up to an election over the last 11 elections, not including 2020, is 8.23 percent. These returns often coincide with forward-looking speculation on who will be elected and how their policies will affect the economy.

Next, the market performance from post-election night through the next 12 months, color-coded by the party elected.

Source: Y-Charts (DeepInTheTrenches.com)

If we assume that performance leading up to a presidential election is driven by who will be in the oval office, we should also consider that performance between November and January has some correlation to the incoming President.

The average 1-year performance post-election night when a Democratic is elected is 9.55 percent compared to 7.13 percent when a republican is elected. As an investor, you likely aren’t concerned with one-year performance, and rightfully so. The S&P 500’s performance from election night to the following election night is shown below.

Source: Y-Charts (DeepInTheTrenches.com)
*performance from 11/08/2016 through 9/16/2020

The average return from election night to election night when a Democrat was elected is 56.04 percent compared to 22.15 percent when a Republican was elected.

You’re likely taking this data in one of two ways. You’re either cheering for the Democratic party or poking holes in the information because it isn’t a fair representation for the Republican party. In either case, it DOES NOT matter whose performance has been better. Add a few more presidential elections, and the data will continue to change. Step away from which party is better than the other for a moment and look at what matters.

Source: Y-Charts (DeepInTheTrenches.com)

These are the average returns of the S&P 500 if you just stayed the course, didn’t speculate, and took politics out of your portfolio. If you think this time is different, maybe you’re right. But so was every election before this one.

Source: Y-Charts (DeepInTheTrenches.com)

Disclosures