Barry C. Smith | Danny C. Williams, CFP® | Jeremy Nelson | Lee Yancey
myelementwealth.com / 601-957-6006
Does the Election Matter to the Market?
Jeremy Nelson, Partner
We are rapidly approaching the holiday season and the end of another year and decade. It’s hard to think about 2020 without imagining the potential media circus that will surround the 2020 Presidential election. In an effort to put some context around what an election year can mean to the stock market, we have broken down the price return of the S&P 500 from 1951 through 2018. Here’s what we found!
Many people believe that election years tend to be negative for the stock market. So below we have broken down returns by each year in the presidential cycle. It is true that an election year averages a slightly lower return than the average annual price return of the S&P 500. But that can also be said about the first year of the cycle and mid-term election years. The third year of the cycle produces an average annual price return of 16.08% with a median that is even higher at 17.27%. This pushes up the average annual return for all years. Election years produce positive returns over 82% of the time and it should be noted that the median return in an election year is 9.54% versus an average of 6.73%. With only 17 observations since 1951, a 38.49% decline in 2008 is holding the average down.
|Presidential Cycle||# of Observations||Average||Median||High||Low||% Positive||% Negative|
Source: Ycharts & Element Wealth
Next, we decided to break the numbers down a little further and see what happens when the incumbent Republican or Democratic party wins or loses.
|Year||S&P 500 PR||Republican Candidate||Democratic Candidate||Incumbency|
|2016||9.54%||Donald Trump||Hillary Clinton||Incumbent Party Loses (D)|
|2000||-10.14%||George W. Bush||Al Gore||Incumbent Party Loses (D)|
|1980||25.77%||Ronald Reagan||Jimmy Carter||Incumbent Party Loses (D)|
|1968||7.66%||Richard Nixon||Hubert Humphrey||Incumbent Party Loses (D)|
|1952||11.78%||Dwight D. Eisenhower||Adlai Stevenson II||Incumbent Party Loses (D)|
|2008||-38.49%||John McCain||Barack Obama||Incumbent Party Loses (R)|
|1992||4.46%||George H. W. Bush||Bill Clinton||Incumbent Party Loses (R)|
|1976||19.15%||Gerald Ford||Jimmy Carter||Incumbent Party Loses (R)|
|1960||-2.97%||Richard Nixon||John F. Kennedy||Incumbent Party Loses (R)|
|2012||13.41%||Mitt Romney||Barack Obama||Incumbent Party Wins (D)|
|1996||20.26%||Bob Dole||Bill Clinton||Incumbent Party Wins (D)|
|1964||12.97%||Barry Goldwater||Lyndon B. Johnson||Incumbent Party Wins (D)|
|2004||8.99%||George W. Bush||John Kerry||Incumbent Party Wins (R)|
|1988||12.40%||George H. W. Bush||Michael Dukakis||Incumbent Party Wins (R)|
|1984||1.40%||Ronald Reagan||Walter Mondale||Incumbent Party Wins (R)|
|1972||15.63%||Richard Nixon||George McGovern||Incumbent Party Wins (R)|
|1956||2.62%||Dwight D. Eisenhower||Adlai Stevenson II||Incumbent Party Wins (R)|
Source: Ycharts & Element Wealth
In the 17 election years we observed, there has never been a negative year for the S&P 500 when the incumbent party wins. However, when the incumbent Republicans win, we see very average returns for stocks. In the five cases we found the average was 8.21% with a median of 8.99%. The best year for the S&P 500, when Republicans won as incumbents, was 1972 when Richard Nixon beat George McGovern. The worst was 1984, when Ronald Reagan beat Walter Mondale.
|Incumbency||# of Observations||Average||Median||High||Low||% Positive||% Negative|
|Incumbent Party Loses||9||2.97%||7.66%||25.77%||-38.49%||66.67%||33.33%|
|Incumbent Party Wins||8||10.96%||12.69%||20.26%||1.40%||100.00%||0.00%|
|All Election Years||17||6.73%||9.54%||25.77%||-38.49%||82.35%||17.65%|
# of Observations
|Incumbent Party Loses (D)||5||8.92%||9.54%||25.77%||-10.14%||80.00%||20.00%|
|Incumbent Party Loses (R)||4||-4.46%||0.75%||19.15%||-38.49%||50.00%||50.00%|
|Incumbent Party Wins (D)||3||15.55%||13.41%||20.26%||12.97%||100.00%||0.00%|
|Incumbent Party Wins (R)||5||8.21%||8.99%||15.63%||1.40%||100.00%||0.00%|
When Republicans lose as the incumbents, the average return is -4.46% while the median is 0.75%. The best case was 1976, when Jimmy Carter beat Gerald Ford. The worst case was 2008, when Barack Obama beat John McCain. It should be noted that the negative average return for the S&P 500 when Republicans lose as incumbents is skewed by 2008, which was the worst year for stocks in our sample.
Going into 2020, it is important to recognize that just because we are in an election year, does not mean the stock market will have a negative year. Also, it should be noted that the return of the market the year before an election is not a barometer of which direction the election will go. 15 out of 17 third years of the cycle have produced positive returns. The worst third year since 1951 was 2015, when the S&P 500 price return was -0.73%. Second worst was 2011 which was a break even year for the S&P 500. Every election is unique to the issues of the day and 2020 will be no different.
The Mystery of the Elephant:
Why you need an investment advisor to help plan your financial future.
The tale of the elephant and the six blind men was made popular in the West by the 19th-century poet John Godfrey Saxe, who wrote the following version of the story in a lyrical form.
The story has since made its way into many books for adults and children and has seen a variety of interpretations and analyses.
It was six men of Indostan To learning much inclined,
Who went to see the Elephant (Though all of them were blind), That each by observation
Might satisfy his mind.
The First approached the Elephant, And happening to fall
Against his broad and sturdy side, At once began to bawl:
“God bless me! but the Elephant Is very like a wall!”
The Second, feeling of the tusk Cried, “Ho! what have we here,
So very round and smooth and sharp?
To me ‘tis mighty clear This wonder of an Elephant
Is very like a spear!”
The Third approached the animal, And happening to take
The squirming trunk within his hands, Thus boldly up he spake:
“I see,” quoth he, “the Elephant Is very like a snake!”
The Fourth reached out an eager hand, And felt about the knee:
“What most this wondrous beast is like Is mighty plain,” quoth he;
“’Tis clear enough the Elephant Is very like a tree!”
The Fifth, who chanced to touch the ear, Said: “E’en the blindest man
Can tell what this resembles most; Deny the fact who can,
This marvel of an Elephant Is very like a fan!”
The Sixth no sooner had begun About the beast to grope,
Than, seizing on the swinging tail That fell within his scope.
“I see,” quoth he, “the Elephant Is very like a rope!”
And so these men of Indostan Disputed loud and long, Each in his own opinion Exceeding stiff and strong,
Though each was partly in the right, And all were in the wrong!
So oft in theologic wars, The disputants, I ween, Rail on in utter ignorance Of what each other mean,
And prate about an Elephant Not one of them has seen.
The experience that individuals have had with investing is as varied as the blind men describing the elephant. Some understand investing as participating in their 401k plan. Others like to buy individual stocks and bonds and hold them. Some trade every day. Others prefer mutual funds and/or exchange traded funds. There are many vehicles for participating in the stock market and a multitude of strategies for growing your money. The mystery of the market is that there is no surefire way to time it perfectly or to know what equities will be in favor or out of favor at any particular time in the future. An experienced financial planner can help you determine how much you will need on a monthly basis in retirement. Factoring in social security and other assets, we provide you with a plan to grow your investments to produce the amount of money you will require. Investing doesn’t have to be a big mystery and the elephant doesn’t have to be overwhelming. Schedule an appointment with us and let us help you eat the elephant one bite at a time.
History of Retirement Savings
One of the Founding Fathers of the United States, Thomas Paine, is best known for penning the powerful pamphlet, Common Sense. Published in 1776, Common Sense challenged the authority of the British government and the royal monarchy. The plain language that Paine used spoke to the common people of America and was the first work to openly ask for independence from Great Britain. In another pamphlet, Agrarian Justice (published 1797), Paine makes the case that those who possess cultivated land owe the community a ground rent. According to the history section of the U. S. Social Security website, “In this pamphlet Paine advocated the creation of a social insurance scheme for the aged… The benefits were to be paid from a national fund accumulated for this purpose. The fund was to be financed by a 10% tax on inherited property. A tax on inherited property was used due to Paine’s general philosophy of property rights. Although he based his social insurance scheme on a line of argument that might sound quaint in the present era, in other respects his plan was quite modern, recognizing the problem of income security for the elderly, and the desirability of creating a national fund for this purpose.”
According to the source of all knowledge, Wikipedia, Paine’s “work was based on the contention that in the state of nature, ‘the earth, in its natural uncultivated state… was the common property of the human race’; the concept of private ownership arose as a necessary result of the development of agriculture, since it was impossible to distinguish the possession of improvements to the land from the possession of the land itself. Thus, Paine viewed private property as necessary while at the same time asserting that the basic needs of all humanity must be provided for by those with property, who have originally taken it from the general public. This, in some sense, is their ‘payment’ to non-property holders for the right to hold private property.” The idea was dismissed but was, as far as I can tell, the first hint of an attempt in the United States to offer social entitlements. The first nation to adopt an old-age social insurance program was Germany in 1889. The concept of government sponsored “pensions” goes back a little further. In 13 B.C., the Roman Emperor Augustus began paying pensions to Roman Legionnaires who had served 20 years. The troops’ pensions were financed at first by regular taxes, then by a 5 percent inheritance tax, according to economist Frank Eich. In the 16th century, Britain and several European countries offered these type pensions to their troops, starting with officers and gradually expanding to enlisted men. The first civilian public servant known to have received a pension was an official with the London port authority. In 1684, he was paid half his working income — deducted from the pay of his replacement. There you go, government entitlement crisis solved! By the way, while I was not able to find the name of the London port authority official, I was able to discover that on January 31, 1940 Ida M. Fuller became the first person to receive an old-age monthly benefit check under the new Social Security law. She paid in
$24.75 between 1937 and 1939 on an income of $2,484. By the way, her first check, dated January 31, was for $22.54.
“I have wondered at times what the Ten Commandments would have looked like if Moses had run them through Congress.”
Element Wealth, LLC is registered with the Securities and Exchange Commission under the Investment Advisors Act of 1940. All information contained in this newsletter is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. All material presented is compiled from sources believed to be reliable. However, accuracy cannot be guaranteed.
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