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Election Year Investing: Does the Party Matter?

Election Year Investing: Does the Party Matter?

September 07, 2016

November is right around the corner, and investor attention is turned toward the upcoming U.S. election. How will the election results affect market performance in the next 4 years? It’s difficult to predict. Many have tried over the years and almost all of the theories have been rejected or disproven.

While history suggests that U.S. stocks have performed modestly better when a Democrat occupied the White House, the standard deviation in annual equity market returns seems to overpower that statistical fact.

Market performance may be affected by who investors think might win. Some historical data seems to point to the possibility that August will give us a sneak peek into who might eventually take control of the White House. If stocks rise between July 31 and October 31, some feel that is a sign the incumbent party will win. If equities fall, some feel that a new party will take over. In 82 percent of the times the markets have climbed during August and October, the incumbent party has won. In 86 percent of the times the market has been down, the replacement party has won. 1

So does the party who ultimately wins the electionmatter to the markets? Experts say, “probably not.”

1Source: S&PCapital IQ