top of page
  • Writer's pictureMark Fonville, CFP®

How 4-Year Presidential Election Cycles Impact the Stock Market

Updated: 6 days ago


How 4-Year Presidential Election Cycles Impact the Stock Market

As we move closer to the presidential election on November 5, the race is heating up, promising a daily dose of headlines. 


It looks like we might see Joe Biden and Donald Trump go head-to-head once again. Presently, Trump is leading in many polls among registered voters, while Biden is not far behind, actively raising and spending campaign funds. 


With so much time still left until November, it's understandable if some investors, especially those aged 50 and above with significant savings, start to worry about how the election's outcome could affect the stock market and the economy. 


The current political scene is more divided than ever, not just because of the upcoming elections, but also due to ongoing disagreements in Washington over key issues like the budget, immigration, foreign policy, and more. 


So, how do 4-year presidential election cycles impact the stock market?


History shows us that regardless of who's in charge, predicting market doom or economic downfall because of a single leader is often misplaced. 


Since 1933, the U.S. has seen 15 presidents, from both parties, and through all these years, there have been many warnings that the next president could be disastrous for the economy. 


Yet, here we are, still one of the most prosperous nations in the world with more opportunity than our ancestor's imagined possible.


Elections matter a lot, whether you're thinking about the country's future direction or who you want leading it. Everyone's vote counts in shaping what values our nation will stand by.


But, when we talk about where to put our money, it's best to leave political preferences out of our investment decisions. 


Stock market presidential cycle chart from 1933 to 2024

The chart above tells a compelling story: the economy and stock market have thrived under both Democratic and Republican leadership. 


If an investor had decided their investments based on the political party in the White House, they might have missed out on significant growth opportunities. 


To put this into perspective, consider the period from 2008 to 2020, which included the terms of Presidents Obama and Trump. 


During these years, the S&P 500 saw an impressive total return of 236%. This growth happened amidst a backdrop of what many perceived as stark differences between the two administrations and a time of heightened political division. Moreover, this period was not without its challenges, including numerous budget disagreements, fiscal cliffs, debt ceiling standoffs, the downgrade of the U.S. credit rating, as well as the global financial crisis and the pandemic.



However, it's important to acknowledge that policy decisions do play a role in economic outcomes. The ways in which governments approach taxes, trade, industrial regulation, antitrust laws, and other areas can indeed influence specific sectors, potentially leading to broader economic effects. 


Yet, it's critical to recognize that policy changes are often gradual, and the market's ability to quickly price in new policies means companies and entire industries are usually able to adapt over time.


This adaptability, coupled with the difficulty in accurately predicting the long-term impact of any given policy, suggests that making investment decisions based solely on political preferences or predictions about policy impacts can be misguided. While it's understandable to have concerns about how political decisions might influence financial markets, history has shown us that the market is resilient, capable of adjusting to a wide range of political and economic conditions. 


This resilience underscores the importance of maintaining a long-term investment strategy that looks beyond the immediate effects of politics and focuses on broader market fundamentals.


The state of the business cycle plays a more significant role than the identity of the President in the White House.


Presidents and stock market returns since 1933 to 2024
Stock Market During Presidential Election Years

For the savvy long-term investor, tuning into the rhythm of the business cycle beats getting caught up in the daily drama of election news.


Sure, the ups and downs of political campaigns can send stocks on a short-term rollercoaster ride, but it's the broader market and business cycles that really shape the investment landscape.


These cycles, driven by forces like tech revolutions and the winds of globalization, play a much larger role in your portfolio's performance than the latest tweet from the Oval Office. If we're talking returns, the impressive climb to current market highs since 2008 owes more to these deep economic currents than to any particular tenant of the White House.


Take, for example, the tech-driven '90s and the early 2000s.


Bill Clinton's presidency coincided with the dawn of the internet age, not because he was particularly tech-savvy (we doubt he ever considered coding his own website), but because of timing. Similarly, the dot-com bubble burst and the 2008 financial meltdown bookended George W. Bush's time in office, highlighting that a president's term can just as easily coincide with economic downturns as upturns.


To pin the booms and busts solely on presidential policies would be like saying the rooster's crow causes the sun to rise. While governmental decisions certainly have their impacts, the true movers and shakers are often technological and financial innovations.


History shows us that presidents might get more credit—or blame—than they deserve when it comes to the economy.


The good news: Regardless of the party in office, stock market returns are positive on average


S&P 500 total returns by presidential party since 1933 to 2024


For the skeptics still glued to their screens, hanging on every political tweet and headline as if it were gospel for their investment strategy, here's a nugget of wisdom to chew on: stock market returns have smiled upon us under both red and blue administrations.


Yes, you heard it right—the market doesn't throw a tantrum and tank every time the White House switches party lines.


The chart above is pretty clear. It's like the market has its own bipartisan agreement, showcasing double-digit gains on average and over the long-term whether a Democrat or Republican calls the Oval Office home.


And it doesn't stop there. Whether we're in the heat of election fever or enjoying a political off-season, the S&P 500 seems to hum along, racking up positive returns on average.


Now, while we can't predict the future with a crystal ball (or an algorithm), and sure, the market has its ups and downs, history has shown that bailing out of the market due to election results or just because the political circus is in town might not be the most historically savvy move.


So, before you let the latest political pundit's predictions send you into a sell-all frenzy, remember: the stock market has been through wars, recessions, booms, and busts, and still, it's managed to keep on climbing. It seems to have a knack for shrugging off political drama with ease, much like a teenager ignores their parents' advice.


Conclusion


As the presidential election on November 5 draws near, with Joe Biden and Donald Trump possibly facing off again, it's easy for investors, especially those over 50, to get caught up in the whirlwind of political headlines.


Amidst the polarized atmosphere and debates over key issues, the question arises: how should investors navigate this election year?


The answer lies in not letting the political spectacle sway your investment decisions. History has shown that the stock market has the resilience to thrive under both Democratic and Republican administrations, delivering substantial returns through various economic challenges and policy shifts.


From the tech booms to financial crises, the market's performance has been influenced more by broader economic trends than by who occupies the White House.


Investors are reminded that market dynamics, driven by the business cycle, play a more significant role than political leadership in determining long-term investment success. Despite the uncertainty that elections can bring, the stock market's history of positive returns under both parties suggests that staying the course is often the wisest strategy.


In short, as we approach the election, it's crucial to maintain a long-term investment perspective, focusing on what you can control rather than getting sidetracked by political drama. Remember, the market has weathered many storms and is likely to continue its upward trajectory, regardless of the election's outcome.


Our best advice: create a retirement or investment plan that focuses on the things you can control. Contact us today for a free retirement assessment.


 

Author: Mark Fonville, CFP®


Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors specializing in helping individuals aged 50 plus plan, invest, and enjoy retirement without the stress of money.


Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine.



 

Disclosures:


How 4 year presidential elections impact stock market_disclosures
.pdf
Download PDF • 808KB

Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.


댓글


Don't Miss Out

Join 8,067+ individuals who receive our retirement insights by email and get a free copy of "Key Issues To Consider Before You Retire."

bottom of page