How does a presidential election affect the stock market?

Presidential elections can lead to stock market fluctuations due to uncertainty. However, historical trends show that despite short-term volatility, the S&P 500 tends to rise over a president’s term.

What happened to the stock market during past U.S. elections?

The S&P 500 has seen varying returns during presidential elections, ranging from a decline of 38.5% in 2008 to a rise of 18.37% in 2020. Despite these fluctuations, the market generally trends upward over time.

Do stock markets perform better under certain political parties?

While market performance can fluctuate based on various factors, including political policies, both Republican and Democratic presidencies have seen positive stock market returns over the long term.

Can the stock market predict the outcome of a presidential election?

While the stock market reflects investor sentiment, it does not reliably predict election outcomes. However, market reactions to election results can influence investment strategies.

The Stock Market and Presidential Election

When a new president is elected, people pay a lot of attention to how it might affect their money. The S&P 500 index, which represents the 500 biggest companies in the U.S., helps us understand what's happening in the stock market during these times. In this article, we'll look at how the S&P 500 performed during the last 36 years of presidential elections. We'll check out the yearly returns, real numbers, and even a stock chart to see what's been going on.

As we look back at the past 100 years of elections and stock markets, it's easy to get worried about what's happening now. As shown in the chart about, no matter which party is in charge, the stock market usually goes up overall during a president's time in office. Even though today's politics might seem intense, there have been other elections with similar divisions and uncertainties. So, as we go through this chart and info, remember that numbers can't tell us exactly what will happen in the future, but they can help us feel a bit more at ease.

George H.W. Bush vs. Michael Dukakis: Back in 1988, Republican George H.W. Bush won over Democrat Michael Dukakis. The stock market did well that year, as you can see in the chart below:

• Year: 1988

• S&P 500 Return: 12.4%

People felt good about Bush's win, and the stock market went up, showing a solid return of 12.4%. Investors were happy because they thought Bush's economic plans would help businesses, which made the stock market go up.

Bill Clinton vs. George H.W. Bush vs. Ross Perot: In 1992, Democrat Bill Clinton beat President George H.W. Bush and independent candidate Ross Perot. Even though people were unsure about the election, the stock market still went up:

• Year: 1992

• S&P 500 Return: 4.5%

Investors were cautious during the election, but Clinton's ideas for fixing the economy made them feel better. That helped the stock market grow a little, showing a return of 4.5%.

Bill Clinton vs. Bob Dole: When Bill Clinton ran for reelection in 1996 against Republican Bob Dole, he won again. The stock market did really well that year:

• Year: 1996

• S&P 500 Return: 20.3%

Clinton's plans for the economy were popular with investors, and they felt good about him staying in charge. That helped the stock market go up by a big 20.3%.

George W. Bush vs. Al Gore: The 2000 election between George W. Bush and Al Gore was super close and caused a lot of tension. But the stock market still managed to grow:

• Year: 2000

• S&P 500 Return: 3.0%

Even though people were unsure about who would win, the stock market went up a bit. Investors thought Bush's plans would help businesses, so they felt better about putting their money into stocks.

George W. Bush vs. John Kerry: When George W. Bush ran for reelection in 2004 against John Kerry, he won again. The stock market did well, too:

• Year: 2004

• S&P 500 Return: 10.9%

People were confident in Bush's leadership, and they thought things would stay good for businesses. So, the stock market went up by 10.9%.

Barack Obama vs. John McCain: In 2008, Barack Obama won against John McCain, but the election happened right when the big financial crisis hit. This made the stock market go down a lot:

• Year: 2008

• S&P 500 Return: -38.5%

The stock market had its worst year in a long time, losing about 38.5% of its value. The housing market crashed just before the election, and the financial crisis made everything uncertain. People were scared, so they sold their stocks, causing the market to drop.

Barack Obama vs. Mitt Romney: When Barack Obama ran for reelection in 2012 against Mitt Romney, he won again. The stock market did great that year:

• Year: 2012

• S&P 500 Return: 16.0%

Investors were happy about Obama's win because they thought things would get better for the economy. So, the stock market went up by 16.0%.

Donald Trump vs. Hillary Clinton: In 2016, Donald Trump won against Hillary Clinton, and the stock market got a bit crazy at first. But it ended up doing pretty well:

• Year: 2016

• S&P 500 Return: 9.5%

At first, people were worried about what Trump's win would mean for businesses. But then they felt better, thinking he would help them by cutting taxes and making it easier for them to do business. So, the stock market went up by 9.5%.

Donald Trump vs. Joe Biden: In 2020, Joe Biden won against Donald Trump. After some initial worry, the stock market ended up doing okay:

• Year: 2020

• S&P 500 Return: 18.37%

When Biden won, some people were worried about what he would do, but then they felt better. They thought he would help the economy by giving money to people and businesses affected by the COVID-19 pandemic. So, the stock market ended up going up by 18.37%.

If you average out all presidential elections since 1964 the average calendar year return in the S&P 500 has been 8%.

Looking at how the S&P 500 did during the last eight presidential elections can help us understand how politics affects the stock market. Even though elections can make the stock market go up and down in the short term, it usually goes up overall during a president's time in office. Remember, numbers can't tell us exactly what will happen in the future, but they can help us feel a bit more at ease when things get uncertain.

Source: https://www.forbes.com/advisor/investing/how-do-elections-affect-the-stock-market/

Image Source: https://www.forbes.com/sites/kristinmckenna/2020/08/18/heres-how-the-stock-market-has-performed-before-during-and-after-presidential-elections/?sh=1b893fed4f86

Intermountain Wealth Management is a Registered Investment Adviser (RIA). The company manages several fee-based portfolios comprised of various equity and fixed-income investments that may include mutual funds and exchange traded funds. This is not a prospectus or an offer to sell any security. Please read the prospectus of any investment before you invest. Information included here is intended for education and information purposes only.

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