Myths of How Markets are Impacted by the Election

Pre-Election Investment Discussions

It’s not often that an investment advisor can use the word “guaranteed.” However, lately it seems that it is guaranteed I will be asked in our client quarterly review meetings, “Should I get out of the market before the election?” In past elections, this question is usually good fodder for a prediction and to discuss what effect a particular Presidential nominee will have on the economy. This year seems to be different. People are a little skittish and I don’t blame them for being a little concerned about how this election is playing out – scandals and lies and rhetoric… oh MY!

Markets and Elections: Statistically Speaking

While the rhetoric on both sides certainly adds another layer of uncertainty to the markets; the bottom line is that statistics show there is very little correlation to which party ends up in the White House and how markets perform. According to CNBC, between May and October of an election year, the S&P has rallied 19 of the last 22 elections (or 86% of the time) with an average gain of 6.2% regardless of which party won. One twist for this statistic is that for election years in which there was no incumbent, the S&P lost 4% on average.

What is probably a little bit more indicative of how the market will react is to look at who controls congress. According to research provided by Brian Belski of BMO, when Republicans controlled congress the S&P typically averages a gain of about 19.7%, vs. an average gain of 7.6% with a split congress and 3.2% when Democrats are in control. As we head to the voting booths in November, we are in an election year with no incumbent and a Republican-controlled congress. Don’t forget about the possibility of a “relief rally!” Typically the year AFTER a new president takes over, the markets rise about 6%.

In the end, how stocks perform in an election year may have less to do with the party of the candidate elected than the underlying economy that will pave the road for future years. Our advice, even if you are deeply devoted to one party or another, is to divorce your investment portfolio from your politics.

There are larger forces that will dominate how markets will act in the upcoming years and it is mostly economy, economy, economy. The best way to play an election is to focus on long-term trends that will play themselves out no matter who is in the White House. Some of these trends for example; are cloud computing, digital evolution and health care. The Baby boomers alone represents a $15 Trillion economy creating a push/pull for supply and demand for entertainment, long term care and hospitality.

If you want to have some fun though, here is a list of potential stock winners as predicted by ISI to reap rewards by outcome:

Clinton Winners:

GE – Trade/Green Technologies
DE – Trade, including in AG
MON –Trade including in AG, IPR
NKE –Trade
TSLA –Auto/Green tech
HCA – Affordable Care Act stays
CHS – Affordable Care Act stays
GOOGL – IPR/Trade, Broadband policy, immigration/skilled workers
AAPL – IPR/Trade, Immigration/Skilled workers
NFLX – Continue Obama policies on broadband regulation and access

Trump Winners:

F – Anti-TPP
KO – Less health regulation
MO – Less tobacco regulation
XOM – Favor fossil fuels
SLB – Favor fossil fuels
NRG – Fossil Fuels, less environmental regulation
C – Less financial regulation
PFE – Less price regulation, corporate tax reform, repatriation
GILD – Less price regulation, corporate tax reform
CXW – Tougher on crime, detention of migrants
VZ – Pro incumbent telcos and wireless

Author: Kelly Pedersen

Caissa Wealth Strategies is a fee based registered investment advisory firm, specializing in personal, dynamic wealth management. Based in Bloomington, Minnesota, Caissa financial planning professionals provide individualized strategies for every client. You can expect more from CAISSA, and in turn, you will get a fiercely loyal advocate on your side. For more news and information on wealth management solutions, visit Caissa Wealth.