Q: How have election years historically affected the stock market?
A: Election years often make investors feel that the election is causing the market to react (for better or worse, I might add). The Wells Fargo Investment Institute released an interesting piece towards the end of last year that outlined the SP500 total return for each presidential election year dating back to 1928. That represents 24 presidential election years, and the average SP500 return for those election years is 11.6% — just above the SP500 average return of all years since 1928 of 10%.
So, put simply — over the long-term, presidential election years often look slightly ‘better’ than your long-term average when it comes to the stock market.
That said, looking at calendar year returns for an election that takes place in November might be misleading, so we thought it would be valuable to look at the election year and the year immediately following. For example, looking at 2020 and 2021, 2016 and 2017, on and on — dating back to 1928. The average SP500 return for each of those 2 year periods is 10% — identical to the long-term SP500 average.
The point here is not that elections won’t have short-term impacts to the stock market- they certainly can. The lesson we learn from this is that the long-term investor experiences the same returns over the long-run, regardless of what’s happening during the election cycle.
Q: Is there anything different about this election year that we might need to consider/look out for? For instance, two former presidents running against each other or there not being much of a primary for that reason.
A: Well, setting any opinions on the candidates aside- both of our candidates have been President before. This allows the markets to have a pretty good idea of what either will attempt to do while in office.
While the presidential election is certainly important, I’d also like to make mention that what happens in the House and the Senate are equally impactful to what happens in Washington over the next two years.
I try not to put too much emphasis on what I believe will happen on election day, but I think there’s a good chance that Congress will remain split - the House is currently held by the Republicans, and the Senate is held by the Democrats - both held by a narrow majority. If we assume neither party wins control of both chambers this fall - then there’s a good chance that we should not expect any major new legislation that might move financial markets.
Division in Washington resulting in little action might not be a new thought for your listeners - so let me put a few metrics to it:
Over the last 20 years, there were a few periods where a single party controlled the White House and both chambers of Congress. When that happens, we typically see market-moving legislation; things like:
- George W Bush in 2001, the Growth and Tax Relief Reconciliation Act- most commonly known as the “Bush Tax Cuts”
- Barack Obama in 2009/2010 had the American Recovery and Reinvestment Act as well as the Affordable Care Act
- Donald Trump in 2017 had the Tax Cuts and Jobs Act of 2017, known as the ‘Trump Tax Cuts’
- Joe Biden had the American Rescue Plan and Inflation Reduction Act in 2021/2022
We tend to view that the elections this year will result in a split congress, making it just as difficult to pass new legislation over the next 2 years as it was in 2023.
For context, Congress passed 27 bills that became laws in 2023 - despite over 720 separate votes. It was the least number of bills signed into law since the Great Depression.
So, back to your question- we know these two candidates, and we know what to expect if we get an expected split Congress- not much in the way of market-moving legislation.
Q: Are there parts of the stock market that you're interested in watching, depending on who wins the Presidential Election?
That’s an interesting question. We’ve seen this now in 2020 and in 2016, where both presidents took to the use of Executive Orders on day one to begin their respective terms.
If Joe Biden wins, I would expect a continued focus on antitrust rules, which could pose as constraints for the tech and financial sectors. That said, I’d also tend to believe that a Trump White House might impose additional tariffs that could benefit some industries, like domestic steel, and hinder others, like companies that import from China, and the auto sector. Of course, Trump’s general deregulatory agenda could also expand exploration opportunities that would benefit oil and gas companies.
Interview with: Travis Taylor, Vice President – Investments, of the Williams and Roof Wealth Management Group of Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a Registered Broker Dealer and Non-Bank Affiliate of Wells Fargo Advisors.
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