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The following presentation by New England Capital Financial Advisors, LLC (“NECFA”) is intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from NECFA or any other investment professional of your choosing. Please see additional important disclosure at the end of this penetration. A copy of NECFA’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.newenglandcapital.com.
Which candidate is better for my portfolio and the stock market?
As we wrap up our first presidential debate (or second depending on who you ask), we have been getting some questions about the impact of the upcoming election and the stock market. As we have seen in this year in the previous couple years, we have some very polarizing opinions (and beliefs) on either party side, which can cause some nervousness due to the unknowns, which is completely normal. I want to take some time to look at some real data and the impact of elections and the stock markets.
Politics can bring out strong emotions and biases, but you would be wise to tune out the noise and focus on the long term. That’s because elections have, historically speaking, made almost no difference when it comes to long-term investment returns.
Which party is in power hasn’t made a meaningful difference to stocks either. Since 1933, there have been eight Democratic and seven Republican presidents, and the general direction of the market has always been up. What should matter more to investors than election results is staying invested.
As you can see in this graph, the market has continued to grow over the past 90 years regardless of which party wins the presidency, as the blue depicts a democratic win and ren depicts a republican winner. Although it has not been a straight line up, the trend is pretty obvious. Markets have trended higher regardless of which party wins the election!
The presidential election isn’t the only one to watch. The results of key legislative races could determine whether either party controls both chambers of Congress (the Senate and the House of Representatives), making it easier to fulfill their policy agenda. Investors often fear such “red wave” or “blue wave” scenarios, but assuming such an outcome will lead to meaningfully lower stock prices oversimplifies the complexities of stock markets. Although popular myths sometimes suggest that one party or the other is “better” for market returns, the historical data does not bear out these theories.
Let’s look at some more data on the elections and the stock market.
History shows that stocks have done well regardless of the political makeup of Washington. Since 1933, there have been 44 years when one party has controlled both the White House and Congress at the same time. During these periods, stocks averaged a robust 14.4% return, slightly higher than the average gains when Congress was split between the two parties. Historically the “least good” outcome has been when Congress is controlled by the party opposite the president, but even this scenario averaged double-digit returns.
This next graph shows a little more detail based on which party wins and which party makes up Senate and the House of Representatives:
The S&P 500 has historically averaged positive returns under nearly every partisan combination, as the chart shows. And in fact, there’s some evidence that divided government has historically correlated with stronger market returns—perhaps because government gridlock creates less policy uncertainty.
It can be tough to avoid the negative messaging around election coverage. And it’s natural to allow the rhetoric of political campaigns to make us emotional. History has shown that elections have had a clear impact on investor behavior, but it’s important that investors don’t allow pessimism to steer them from their long-term investment plans.
As always, we will continue to monitor your portfolios and we will make changes when necessary. In the meantime, grab come popcorn and enjoy the political circus over the next 2 months.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by New England Capital Financial Advisors, LLC [“NECFA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from NECFA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. NECFA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the NECFA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.newenglandcapital.com. Please Note: NECFA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NECFA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a NECFA client, please contact NECFA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.