FORECASTS & TRENDS E-LETTER
by Spencer Wright
January 23, 2024

IN THIS ISSUE:

1. A History of Market Returns

2. Volatility During Presidential Election Years

3. Returns Up To and After the Election

4. Conclusion - Which President Had the Best Market Returns?

A History of Market Returns

I have been in the investment business for 28 years. This will mark my seventh Presidential election cycle over that period. Without fail, clients have questions and concerns about market performance during each presidential election cycle.  It is a common question and I always give the same answer – it varies but in general performance is pretty good. 

Here is a chart of election year returns dating back to 1928.

A quick look at this data shows that the S&P was down only four times over these 24 election years. That is really good. The average election year return over this period is 11.57%. Not bad when compared to the annualized S&P return since inception of 9.26%.

Let’s also consider what the economic environment was like during those loss years. The Great Depression was still going in 1932 and World War II was well under way in 1940 (although we didn’t enter the war until 1941). In 2000 the tech-wreck bear market was beginning to take hold and we all know what happened in 2008.

Volatility During Presidential Election Years

Obviously, there are many factors that affect the market and most have nothing to do with presidential politics. Even so, presidential election years are more volatile than usual. The following chart is comprised of 90 years of market volatility data during election years.  As you can see in the five months leading up to an election, volatility increases by 30%. That is quite a bit and likely accounts for the memories many of us carry about presidential year market action.

So why the additional volatility? Market volatility reflects investor uncertainty and fear. During presidential election years, uncertainty usually centers around policy statements made by the candidates, especially if those statements mark a move from current policies. Also, is either candidate a market favorite? Will policy continue in the current, known direction, or will there be an abrupt policy shift? Is change desired or not?

But what about after the election? Consider the graph from the election forward. As you can see, volatility decreases. With decreasing volatility comes increasing stock prices.

Returns Up To and After the Election

As part of considering the entirety of the effect Presidential elections have on the markets, we need to look at the 12 months leading up to the election and the 12 months after the election. The graph below supplies information going back to 1964.

The next graph illustrates the basic market optimism that exists going into an election. It does not illustrate the increased volatility, as shown in the previous graph. When running for re-election, sitting presidents try not to rock the boat with economic policies that may be harmful in the short term to the economy and could in turn damage their chances of winning the election. For example, no one raises taxes during an election year.

The economy is often a key issue in campaigns if not THE issue. Many people vote with their pocketbooks. As renowned political operative James Carville famously said, “It’s the economy, stupid.”

There is an element of relief after the election, regardless of the outcome. After all, both parties are favorable to Wall Street, for the most part. Only five of the sixteen following twelve-month periods above resulted in a negative return. Again, that’s not bad when you consider only one of those returns was a loss of more than 20%. And that was the result of a true black swan event, the 9/11 terror attack.

In general, returns are pretty good up to, during and after a presidential election.

Conclusion - Which President Had the Best Market Returns?

While there is often increased volatility during presidential election years, the outcome is good for the most part.

So which President has the best market returns? It isn’t who you might think. Over the course of his full term that honor goes to Calvin Coolidge with a total return of 230.5%. FDR presided over the greatest boom period during WW II, peaking at a gain of 238.1%, but only 198.6% over his very long term of office. Of the modern era Bill Clinton wins with 228.9%, followed by Obama with 148.3% and Reagan at 147.3%. GW Bush clocked in at -26.5% due to the great recession.

You may be wondering how Trump and Biden rank. Look at the graph below. Biden is the solid blue line; Trump is the dashed brown line.

If a picture is worth a thousand words could this one be worth 100,000,000 votes? We will find out.

Thanks for reading,

 

Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.