The U.S. has a presidential election coming up this year. What does that mean for financial markets? Perhaps surprisingly, probably not much. While the presidential election generates lots of headlines, its effect on the market is just one of many variables. Inflation, Fed policy, and investor sentiment consistently hold more sway over investment returns than election outcomes.
Since 1960, the return of the S&P 500 during presidential election years has been positive (under presidents of both parties) all but twice. The two times the S&P 500 has had negative returns were largely due to significant economic events (the “dot-com bubble” in 2000 and the “Great Recession” in 2008).
Additionally, presidential elections have had negligible impact on returns from a long-term investment perspective. The U.S. economy has continued to grow under presidents from both parties. The graph below shows the growth of the S&P 500 under the last 15 presidencies (8 Democratic and 7 Republican). This shows that staying invested in the markets has a much greater impact on investment returns than who is in the White House.
Over the next several months as the election nears, there will be lots of prognostication about what the impact of the presidential election will be on the financial markets. At AP Denver, we believe it is more important to plan for the future than to attempt to predict it.
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