Market Commentary - October 2016

I guess this month is as good as any to address the election year and the relationship to elections and markets. Before sharing some statistics let’s address the fact that this year’s election seems to be bringing out more “fear” of what the market may do if a particular candidate wins. While the markets could have a short term reaction we do not believe it is necessary to make any sort of long term investment decisions based on this. Volatility is what makes markets what they are and at times it is higher or lower than the average, but volatility is a constant. This is not to say tweaking a portfolio is unwarranted but making drastic changes based on who the next President might be is not advisable.

Now on to some anecdotal numbers just for fun. Historically, both parties have been good for markets with average annual gains of 6.7% under Republicans and 9.7% under Democrats. A misconception (one we have even made) is the assumption that a divided government is better for markets since both parties will have to "give in" and compromise or get nothing done. The annual returns paint a much different picture. In the two years following an election, the S&P 500 has gained on average 16.9%, when one party controls the White House and Congress vs. 15.6% when one party controls Congress and the other party controls the White House

One final interesting stat I came across was regarding the S&P 500's performance the three months leading up to an election. Since 1948, if the S&P 500 rises from July 31st through October 31st, 88% of the time the incumbent party/person gets reelected. Take that for what it's worth, which honestly isn't much!

Ara

Sources: 

http://www.kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html

http://www.chicagotribune.com/business/sns-201603311400--tms--kplngmpctnkm-a20160418-20160418-story.html