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Presidential Election Years and the S&P 500

Presidential Election Years and the S&P 500

January 27, 2020
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It's January and before we know it, the presidential election will be upon us.  In 2019, the S&P 500 had an excellent year, returning 28.88%.  With a great year in the markets behind us and a new year already almost one month in, what might the S&P 500 return in this election year?
 
From a historical perspective looking back over the last 19 elections, year 3 of a presidency has seen the strongest returns by far for the S&P 500, averaging 15.4%.  Year 3 has also seen double-digit returns in 13 of those 19 years, and only posted a loss a remarkable one time, in 1941.
 
The fourth year of an election cycle has historically been the second strongest year for the S&P 500, averaging 7.1% going back 23 presidential election cycles to 1928.  In 17 of those 23 presidential election years, the S&P 500 has posted positive returns which is an average of 74% of the time compared to 68% of the time it posted a positive return for all years since 1928.  Of the 17 positive years, 11 of the years were double-digit gains and only 4 times were there double-digit losses (2000 and 2008 are the two most recent when the S&P 500 experienced drops of -10.1% and -38.5%).
 
All of the statistics quoted above however do not guarantee that the U.S. stock market, in particular the S&P 500, will have another positive year.  We have no way to predict what the market will do on any given day, let alone over the course of an entire year.  Which is why our investment philosophy has always been to construct well-diversified portfolio that include a mixture of U.S. and international equities, along with cash and fixed income allocations in order to provide liquidity that our clients need to live on and help to mitigate losses in the equity markets.  We also proactively look for opportunities when the equity markets are high to raise cash for our clients, as "buying low and selling high" is the way to make money in the markets over the long run.
 
As we move further into 2020, no matter if the S&P 500 follows the historical trends of previous fourth years of presidential election cycles, we will continue to stick to our long-term investment philosophy that has served our clients well for many years as we all continue to "Move Life Forward" together.
*Investors cannon directly invest in indices. Past performance does not guarantee future results.
*Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.
*Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results.