With less than a month away from the Presidential election, there is no shortage of narratives driving the news cycle.
It helps to take a step back and tease out what these storylines mean for markets.
Over the long-term, Presidential elections have been much more noise than signal for investors.
The below chart shows the growth of $10,000 since 1937. If one invested only during Republican presidencies, the result was growth to $100,000. If one invested only during Democratic presidencies, the funds grew to $200,000. Staying invested throughout resulted in the best result – growth to $1.6 million!
Source: Alliance Bernstein
In the short-term, volatility around elections is the rule and not the exception. We should build this into our framework in thinking about how to respond to volatility. In this sense, it is important to have a plan to respond to short term dislocations in the market.
Over the longer term, the returns for markets during the four-year Presidential cycle historically tend to be more muted in the first two years.
The above chart is a useful guide for expectations. Still, the results vary widely in different periods.
In the two years following the last three presidential elections, the market outperformed the average price return of 10%. The market's price return was up 21% in the two years after Obama's 2008 election. It was up 42% in the two years after Obama's 2012 election. After Trump's 2016 win, the market's climbed 32% over the next two years.
Statistically, this is still a small sample size and does not offer enough information for market timing decisions. The old adage that time in the market is more important than timing the market remains true.
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