Why the Presidential Election Outcome Shouldn’t Influence Your Portfolio Allocation
Presidential Election Outcome Concerns and Market Timing
During Presidential election years, clients often ask whether they should adjust their investment portfolio allocations based on concerns about a particular candidate winning. As advisors, we remind them that, from a long-term investment perspective, making such changes doesn’t make sense. Timing the market is challenging, and much of the noise surrounding elections tends to subside without causing significant disruptions to the growth trajectory of the U.S. equity market.
Post-Election Returns: A Positive Trend
A closer look at historical data reveals that post-election returns are typically positive over the short-to-medium term timeframes. The table below presents data from the last 13 elections, covering nearly 50 years, showing the S&P 500’s price returns 1, 3, 6, and 12 months after each presidential election. The data indicates that the S&P 500’s average returns increase as time progresses: +2.7% after 1 month, up to +9.6% after 12 months. If we exclude recession years from the analysis, these returns improve further, ranging from +4.5% after 1 month to +10.6% after 12 months.
Returns by Political Party: A Cautionary Note
The table also shows average returns by political party; however, these figures should be viewed with caution. Recessions can skew the data, and the timing of these economic cycles does not always perfectly align with the post-election timeframes analyzed.
The Long-Term Perspective
Historical trends indicate that markets, on average, have responded positively following election day. We will continue to monitor if this trend holds in the coming months.
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Andrew Pratt, CFA, CBDA
Investment Manager, Wiser Wealth Management
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