Thursday, 10 November 2022
Written by MYTHEO
Does the market perform better when either the Democrats or Republicans are in charge?
That was a key question at our latest webinar with MYTHEO’s Chief Investment Officer, Matthew Stuart-Box.
In case you missed it, you can watch the full webinar here, but in the meantime, here are 3 key takeaways:
1. Data1 from 1833 to 2013 shows that the second half of a Presidential term has averaged better performance historically than the first half. This is in line with what is called the Presidential Election Cycle theory. However, Matthew cautioned that this could be more correlation than causation.That said, politics and policy aside, how do US elections impact stocks?
2. On average, stock returns are 10.9% higher2 under Democrat presidents than Republicans (based on research up to 2015). However, there could be an element of luck considering that Republican presidents suffered major events such as the 1929 Wall Street Crash, the 1970’s Oil shocks, the dotcom bubble, and the 2008 Global Financial Crisis (which arguably had nothing to do with which party was in office). For example, the Clinton era happened to coincide with the 90s tech rally while the dot-com bubble burst happened during the presidency of George W. Bush.
3. Despite popular commentary that political gridlock is good for markets, data3 suggests that unified governments (where the Presidency and Congress are from the same party) tend to do well, but the best scenario, based on average historical returns, are Democrat Presidents with a Republican congress or with a split congress.In our next webinar, MYTHEO’s Chief Investment Officer, Matthew Stuart-Box, will take you through what history can teach us about the impact of US Elections on financial markets.
The Bottom Line
While there seems to be data, evidence, and theories related to US elections and their possible impact on stock returns, investors should always be cautious when basing investment strategies on possible one-off events and outcomes, such as a presidential election or pandemic.
In the long run, investors are better off staying in the market, investing regularly (dollar-cost averaging), and staying smartly diversified.
MYTHEO’s algorithms will build and maintain a highly personalised portfolio for you. On top of that, MYTHEO will automatically rebalance and re-profile your investment portfolio regularly to ensure it continues to match your financial goals and risk tolerance.
Get started with MYTHEO today.
MYTHEO is a Digital Investment Manager, more commonly known as a robo-advisor, licensed by the Securities Commission Malaysia.
1‘Presidential Election Cycle Theory’ by John Heilner. Retrieved from
2‘Political Cycles And Stock Returns’ by Lubos Pastor and Pietro Veronesi. National Bureau Of Economic Research Working Paper Series - https://www.nber.org/system/files/working_papers/w23184/w23184.pdf
3CFRA Research, based on S&P 500 data from 12/31/44 - 12/31/21retrieved from https://www.forbes.com/sites/sergeiklebnikov/2022/01/19/we-looked-at-how-the-stock-market-performs-during-midterm-election-yearsheres-how-2022-may-be-worse/?sh=438d38672562
This communication is subject to terms available at the following link: https://www.mytheo.my/MYTHEO/resources#legal-and-documents