Skip to main content

McKinley Carter Among Nation's Top 75 Best Places to Work for Financial Advisers!

Election Huddle

2016 Presidential Election: Predicting Markets, Election Results

Many clients are concerned about how the upcoming election results might impact their portfolios. Markets, over the long-term, are mostly moved by fundamentals, economic outlook, and, for the time being, central bank policies. We continue to assert that our clients’ investment decisions are best met by assessing and respecting longer term goals, and avoiding current events. In the spirit of the imminent election and its aftermath, we’ll explore a few thoughts regarding predicting markets and election results.

Before getting to the meat of this, we offer a modest and trivial digression to a disturbing bit of news scrawled across the cable news programs recently. Apparently, only one in five Millennials have ever had a Big Mac. Digesting this, in context of elections, suggests that a future U.S. President will not know about two all-beef patties, special sauce, etc. on a sesame seed bun. Political pundits believe this election, and the consequences for years to come, will be determined by voter turnout. Yet, only one of five millennials voted in the last midterm elections. Whether Big Mac consumption was causal or correlated to the voting turnout is yet unknown.

Change, by its nature, brings uncertainty. Generally speaking, the market prefers political stability. It is fair to say that one Presidential candidate is seen as an agent for change, and the other not. According to Ned Davis Research (for years 1900-2012) on average, financial market gyrations (volatility?) tends to tick up in the weeks preceding elections, and more so in years when the incumbent party is expected to lose. Post-election, the markets tend to rally by year end with either party in the White House. However, on average the markets do much better when the incumbent party wins.

Sure, it would be tremendously helpful to find predictive indicators -- a predictive result would be “because this exists, something will be more likely to happen.” Consider the Super Bowl effect, which measures the likelihood of a positive year in the markets, based upon the team that wins the Super Bowl. There is an 82% association of positive market returns for years when certain NFL teams win the Super Bowl. Of course, there is no relation between football and markets, and this correlation is merely an association and not causal.

But, back to the political parties. Each party claims to be better for business and investments. Can the investor class find investing comfort with one party in the White Houser versus the other? The answer is a resounding “not really.”

Each election cycle, charts are rolled out suggesting which presidential party is better for stock markets, and the benefits of dividing power between the White House and Congress. There are not sufficient data points for these charts to be statistically valid and they are not predictive of how the markets will perform with either party at the top. Frankly, even if political party were scientifically predictive, would the science hold up with this year’s unpredictable outliers especially with the historical high unfavorable ratings for both candidates?

Looking down the road, the voting power of Millennials will likely introduce additional variability, as they are soon to be the largest generation of eligible voters, long held by the baby boomers who may recall the McDonalds ad slogan from the 1970s and 1980s and "deserve a break today.”

Related Insights
Jamie street Nv W y2s O Jtc unsplash DPN article crop for CRAFT

The Light at the End of the Tunnel: Stimulus and Vaccine Optimism Power Markets Higher

The first quarter of 2021 was marked by several macro- and micro-economic surprises that resulted in increased market volatility compared to the fourth quarter of 2020, but additional economic stimulus combined with accelerating COVID-19 vaccine distribution and a decline in coronavirus cases helped stocks start the new year with solid gains. Take a look back with us at the first quarter of 2021. Review what actions we took on client portfolios as market dynamics changed. And learn what we expect for this year in our 2021 economic outlook.

Read More
FYI Sustainable Investing blog Image

Sustainable Investing: What It Could Mean for Your Portfolio

This is the first in a two-part series of blogs around Sustainable Investing. Here, we review the origins of Sustainable Investing and define what ESG means from a portfolio perspective.

Read More
Bumpy Ride Hero Image

The Economy and the Markets in The Age of COVID – A Contest Between the Federal Reserve and Margo Channing

2020 continues to be one of the most unpredictable years in memory, as markets rose to new all-time highs in the third quarter despite a resurgence in coronavirus cases, as stocks rallied thanks to a combination of an even more accommodative Fed policy, hopes for a COVID-19 vaccine, and a stronger-than-expected economic rebound, before markets declined moderately from those highs in mid-September.

Read More
Play