Market return predictions during election years (both before and after election days and inaugurations) get a lot of attention. Especially considering that experts have been very wrong on these fronts, it’s worth looking at the charts below to see actual historical performance.
The first chart below shows the performance of the last 23 presidential elections, dating back to 1928. The gray bars indicate average returns during the election year, and the green bars show average returns the year after the president was inaugurated.
You can see that there is no reliable data showing that the year after the election is any good predictor of returns. Ten out of 23 years resulted in negative returns, which is a 44% chance of a negative return in any given year after a president is elected. In my opinion, that’s close to 50%, so there’s no value in trying to predict which way the market will go in 2021.
You can also see that stocks produced positive returns in most years during the election cycle. On the flip side, four out of 23 years during election cycles had negative returns. Using this very, very rudimentary method, a blind predictor would estimate an 83% chance that we will see positive returns in 2020. Interestingly, going back to 1926, stock investors saw declines only 25 out of 92 years, or a 27% chance of loss in any given year. The blind stock predictor, in this case, would say that we have a 17% chance of loss during election years. To sum up this paragraph, you have roughly the same probability of positive returns during election years than you do in any other normal year.
The night of the 2016 election, virtually all commentators and stock and bond analysts from major firms were positive that Trump’s election would spell doom for our markets. That obviously didn’t happen— even the best and brightest are often wrong when it comes to investment predictions.
Since we’re talking about politics and investments, let’s look at the chart below. We get this question from time to time: “Who has a better investment return record—Democrats or Republicans?”
As you can see, it doesn’t matter who’s in office, so don’t fall for politicians’ lies when trying to claim credit for stock gains. Stocks post gains when earnings are good, regardless of who is in office.
Just as an aside, Bill Clinton’s administration holds the record for returns, sustaining an over 18% annualized return for the eight years he was in office, which is remarkable and unheard of—however, not in any way, shape, or form attributable to Bill Clinton himself or his administration.