by Kyle S. Plotkin
Investment Advisor Representative
[email protected]
As retirement planners and investment advisors, an important part of our job is to monitor the economic and political situations in the country with an eye to how they may affect the financial markets. Elections are among the biggest of these events, and we’ve just had an important one. I know that I’m glad to get beyond the constant political ads and horse race poll results that have dominated news and media over recent months. A big question now is about how the election of Donald Trump will impact the markets going forward.
We currently have no idea what changes will actually be made when the new President takes office in 59 days. Every change in leadership comes with risks and unknowns, and this time is no different. Will he add new tariffs on imports? Cut taxes on Social Security, overtime, tips and on corporate earnings? Change immigration policy? Shift the role of different governmental agencies? Will Congress have a say in some of these things? At this point, nobody knows.
It’s a well-repeated adage that history always repeats itself. Personally, I prefer a take that is credited to Mark Twain: “History doesn’t repeat itself, but it often rhymes.” As a history enthusiast, I often look to the past for clues to the future. Thus, I reviewed stock market returns (according to Global Financial Data, Inc.) across every presidential term going back 100 years to the Coolidge Administration. Here are some of my findings:
- In the first year of a presidential term, the market went up 60% of the time with an average return of 11.3%.
- Year two also went up 60% of the time, but brought the lowest total average return of 7.5%.
- Year three has been the best year, by far. Returns have been positive a whopping 92% of the time for an average return of 18.7%.
- Year four has also been very good, going up 83% of the time for an average return of 11.4%.
- The Great Depression brought the most volatility, with two of the top three highest returning years under FDR in 1933 and 1935. Two of the worst three years also happened here, under Hoover in 1931 and FDR again in 1937.
- Barack Obama was the only president to see market gains across all 8 years of his two terms. Interestingly, the lowest returning years were both in Year 3 of each term which is surprising given the Year three numbers I listed above.
Now, how about stock market performance by political party? Since the S&P 500 inception in 1957, the median annual return under Democrats has been 12.9% and 9.9% under Republicans. These numbers do not account for control of Congress. Perhaps that’s another column for another time.
Have a great weekend and a fantastic start to your Thanksgiving week.