Stock Market Returns During Presidential Election Years
It's always fun to look at market returns as subsets of recurring events and see if we can gauge any significance in expected future returns.
since we're now about a year from a presidential election it's time to ask. Are election year returns better than average annual returns? Do they tend to be more likely to be up or down regardless of the average annual return? Does an incumbent running for re-election matter versus 2 new candidates?
Are election year returns better than average annula returns? No, if the S&P 500 is used to measure. Since 1928:
Average Annual S&P 500 Return = 11.71%
Presidential Year S&P %00 Return = 11.06%
Incumbent Running S&P 500 Return = 10.92%
Based on the data since 1928, presidential election years have a lower average return than the average (including elections) in the 23 presidential election years used in the calculations. Furthermore, when an incumbent is running the returns drop further, to 10.92%, but there are only 15 instances in this case to measure.
Do they tend to be more likely to be up or down regardless of the average annual return? Yes, if the S&P 500 is used to measure. since 1928:
Average Annual S&P 500 Positive = 72%
Presidential Year S&P %00 Positive = 83%
Incumbent Running S&P 500 Positive = 87%
Again, based on the data since 1928, the S&P 500 is most likely to be positive in a presidential election year when an incumbent is running for re-election (and it hasn't really mattered if the incumbent won or lost). In fact, the spread here shows that election years are more likely to be positive and less volatile.
What does all of this mean? The total amount of data or instances available doesn't allow us to draw any concrete conclusions and certainly not base investment decisions on it. The higher likelihood of a positive outcome in an election year and even more so with a presidential incumbent might be a factor of something like increased government spending driving an expectation of corporate profits higher and thus driving the stock market higher, but that's a different study.
Either way, sometimes it's just fun to look at the numbers, whether they create investible strategies or not.
* This is not investment advice, it's just a look at historic returns during the 'silly season' of presidential politics.
** The data used is believed to be reliable, but there are numerous different data sets that show different annual returns for the S&P 500.