(November 5, 2016) As we approach the U.S. Presidential Election, anxiety seems to be running high (regardless of your political persuasion). One of the most-commonly fielded question we’ve received over the past few months has been: What do the elections mean for my investments?
Therefore, we hosted one of our in-house educational events, A Morning at Sunrise, on October 27th (“Politics, Policy & the Markets”) to compare and contrast the income tax and estate tax proposals of the candidates, discuss how markets react when different parties are in power, and explore the potential outcomes of certain policy proposals. As realists, we understand that policy proposals (what is said on the campaign trail) may not look much like the actual policy or law that is eventually implemented. We are encouraging our clients to maintain a long-term perspective. In the short-run, politics may influence economics or markets; in the long-run, we have found that economics help drive political policy. We are hopeful that pragmatic, pro-growth economic policies will be set into motion and we are optimistic, regardless of the Presidential outcome, of the prospects going forward.
Below, we’ve included some of the data we shared with our clients and friends in our latest discussion. Historically, markets have behaved differently in certain years of the President’s term (SOURCE: Strategas).
Do politics influence the election or is it the other way around? One indication of a change in party power in the White House is the performance of the market (in this case, the S&P 500) in the three months leading up to the election (SOURCE: S&P Capital IQ). Historically, when markets are positive, the political party in power will most likely remain in power. When markets are negative, there has been a good chance of change.
There has been much discussion about how markets perform when a certain party is in control of the White House. We believe a deeper dive is prudent; the composition of Congress is also an important factor. Here is a graphic showing the average annual return for the S&P 500 with different “mixes” of elected officials (SOURCE: S&P Capital IQ).