Market Returns: A Presidential PredictionSubmitted by Legacy Financial Group on October 30th, 2012
With only a short time left until we select the 45th President of the United States of America many investors are in a state of panic. Many believe the market is waiting for the outcome and if the "correct" candidate is selected the stock market will immediately surge on the news. Or, if the "wrong" candidate is selected the market will tank the next day. Fortunately, history provides a guide on this matter and it suggests that, when it comes to U.S. Presidents, the market is a true Independent.
The Presidential election is undoubtedly a highly charged topic. And almost everyone has strong feelings on what the ramifications will be should one candidate be elected. We do not mean to undermine the importance of elections, but simply want to provide evidence that the stock market is not unduly influenced by Presidential reigns. Below is a chart which shows the annualized stock market returns under each President's tenure since Herbert Hoover.
Do any patterns emerge? What appears fairly evident is there is no clear pattern in stock market returns based on political party of the President. However; you can see a positive rate of return which crosses all political lines. If you do a little more digging you will find periods of growing government and shrinking government, of expanding deficits and expanding surpluses, of high taxes and low taxes, of war and peace, and of everything in between. We are not arguing these things don't make a difference in our economy. The point is the timing and direction of any affects are unpredictable.
In other words, there is risk associated with market returns. The long term rate of return we receive is from bearing that risk. No magic ball, such as who is the President, will tell you when to get in or out of the market. The only way to capture the full market rate of return is to be invested at all times.
So in the upcoming election vote for who you think will best serve this great country, but be rest assured that if your man is not elected there is no convincing evidence that your investment portfolio will be worse off.