Politics and the Stock Market

 

donkey and elephant

Presidential elections can be nerve wracking. How might a new administration’s policies impact our day-to-day lives, our jobs, and the wealth we have worked hard to accumulate?

Hartford Funds did a survey with 794 respondents with $100,000 to $500,000 invested. The survey reveals that most investors (61%) think market volatility will increase in the months leading up to the 2016 presidential campaign. The same survey shows 43% of investors believe a Republican president will be better for investments while 24% believe a Democratic president would be better. 32% believe it doesn’t matter.

History shows growth under both parties’ leadership.  Morningstar Direct reports average annual returns of the S&P 5001 from 1/20/1961 – 12/31/2015 to be 8.71% under Republicans and 13.29% under Democrats.  Republicans had the greatest return under Ford from 1974 – 1977 at 18.1%.  But also the worst return under Bush from 2001–2009 at -2.9%.

The blog, “Factors Affecting the Stock Market”, on www.economicshelp.org gives the underlying factors that govern the stock market as:

  1. Company/Business profitability – increased demand for goods and services boost company profits.
  2. Interest rates – low interest rates help make firms more profitable – and stocks more attractive.
  3. Investor confidence and expectations when prices fall – emotions cause us to exit the market.
  4. Global markets – stocks can benefit when bonds or other investments seem less appealing, depending on the investing environment.

Which do you think has impacted the market more – the White House or the iPhone?  According to Apple, their company is responsible for creating and supporting 1.9 million jobs. 94% of small businesses use smartphone technology, saving money and increasing productivity.

That is not to say government regulations don’t impact business. They do. The new Clean Power Plan announced by the Environmental Protection Agency (EPA) calls for CO2 reduction of 28% by 2025 and 32% by 2030 from 2005 levels. This plan will cause more closures of coal-based power units and have economic impact on coal producing states.

Politics and election years are no reason to be out of the market. As illustrated by Morningstar Direct showed the growth of $10,000 invested in the S&P 500 Index over the last 55 years 1960-2015.

  • Fully invested, but moved to cash during election years, produced $1,136,820 over this period2
  • Fully invested for the whole period resulted in $1,894,3742
  • Fully invested and added $2,000 during election years, grew to $2,869,460 by adding $36,000 during that same period2

Technology has advanced over that period, i.e. dot matrix printers to laser and ink jet printers and now 3-D printing; rotary phones to mobil phones to digital cell phones and now the smartphones. The examples of innovation are constant and can drive markets.

Nanette Abriho-Hacobson, asset allocation strategist for Hartford Funds, summarizes it well. “Markets hate change, but ultimately find their footing. The upcoming election will likely cause more stress to American voters than to the stock market.”

1 S&P 500 Index is a composite of 500 leading companies in the United States.  Indices are unmanaged and not available for direct investment.                                                                                                                                                                               

2 Past performance is no guarantee of future results.

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