The Future Began Today
Life can only be understood backwards; but it must be lived forwards.
When I published “Do You Need to Worry About 2020?” one year ago, I had no clue what 2020 would hold for us. Now that the year is almost over, I’m really glad that I wasn’t pessimistic enough to predict a year this volatile from a public health, economic, political and societal standpoint.
There were 1456 days between the presidential election that took place on November 8, 2016 and yesterday’s election, but let’s just focus on what we’ve experienced over the past 365 days. Billions of spoken, shouted and written words; debates, debates and more debates: 12 democratic, 2 presidential and 1 vice presidential. Scores of primaries and caucuses, billions of dollars spent on political advertising and hundreds or thousands of polls and forecasts. As if we haven’t had enough of politics, the 2024 election cycle begins today. Am I the only one who’s exhausted?
The votes are in and they’re being counted so let’s dig a bit deeper into an investor concern that looms over the result of every presidential election–their money. During campaigns, investors hear candidates paint bleak pictures of what will happen to the economy and the markets if their opponent wins. Kierkegaard tells us to understand life backwards, so let’s do just that and revisit the returns of the S&P 500, following past elections.
Figure 1 shows the S&P 500 investment returns of every presidential administration since 1929. Poor Hoover, this chart makes his administration look terrible, and it was! Sympathy aside, the truth is that who is president hasn’t really mattered. Out of the 26 administrations since 1929, only five have delivered negative investment returns. That means 81% of the time investors have earned positive returns regardless of the president. Now, that’s an average anyone would take.
Figure 1 S&P 500 Annualized Returns During Presidential Terms
As Figure 2 illustrates, since 1926, the market has risen despite the fact that over that time we’ve endured 16 actual recessions, numerous anticipated recessions, societal unrest, assassinations, wars, political scandals and Congressional inertia.
The message to investors: despite short-term market fluctuations, investors who invest for the long-term are more likely to achieve their goals than investors who bob, weave and make changes with every short-term event.
Figure 2 Growth of One Dollar Invested in S&P 500 1929-2019
So, if 81% of the time it doesn’t matter who is president, then it would seem that the party leadership of the Executive and the Legislative branches of the government must be aligned for investors to reap positive returns.
As it turns out, historically it hasn’t mattered if the Executive and Legislative branches of the government were led by different parties. Since 1933 mixed-party control of the executive and legislative branches has actually yielded positive investment returns.1
FEAR is an acronym that stands for False Events Appearing Real. When it comes to our investments, it makes sense to understand what it does to us and heed the words of Franklin Roosevelt who said, “We have nothing to fear but fear itself.”
The bottom-line, investors should not fear the results of an election. Instead, they should fear the fact that the 2024 election cycle begins today….