As a financial advisor, I thought it would be timely to discuss how the market has historically performed over each elected President’s four-year term. In the first year, we usually have an adjustment period that often sees modest market performance. The average return on S&P 500 was around 6.7% in that initial year. I believe this could be a grace period as the President is trying to implement the policies that his platform promised to put into place, if elected. (1)
In the second year, which includes the midterm elections, the market has historically experienced its worst year of the Presidential cycle. Historically, the S&P 500 averages about 3.3%. (1) I think that there can be many factors at play here. The uncertainty of midterm elections and who has control of power in the House or the Senate for one, and perhaps a lack of action on the promises made during the Presidential election cycle and their platform, (such as holding their feet to the fire on promises made to get elected).
The third year of a Presidential cycle is historically the best year in the market with an S&P average of an impressive 13.5%.(1) The surge could be attributed to pre-election economic stimuluses, along with policy initiatives aimed at boosting the economy, and if they are a first term president, policies that have been looked at favorably to start seeking reelection of a second term.
In that fourth year and an election year, the S&P 500 has averaged about 7.5%. (1) It is important to understand that these are historical averages and some of my opinions as to why each year varies and these are not guaranteed results. There are many economic factors that influence market performance that would include, global economic conditions, unforeseen world or country events, and technological advancements. A long-term, diversified investment strategy should remain as the most prudent approach regardless of where we are in a presidential cycle.
Sources: (1) Investopedia
https://www.investopedia.com/terms/p/presidentialelectioncycle.asp
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Investors cannot invest directly in indices. The performance of any index is not indicative of the performance of any investment and does not consider the effects of inflation and the fees and expenses associated with investing.
The views stated are not necessarily the opinion of Cetera. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. A diversified portfolio does not assure a profit or protect against loss in a declining market.
