Do Presidential Elections Actually Impact the Financial Markets?Submitted by Miller Financial Group | Red Oak Iowa Financial Advisor on November 26th, 2019
Do Presidential Elections Actually Impact the Financial Markets?
By: Daniel S. Miller, CFP®
This is a question that has been debated for years. More often than not, whenever a presidential election year is underway, you will hear the media and financial analysts talk about the economy, the stock market, and what may potentially happen depending upon which party is in office post-election. There will often be self-proclaimed experts who have their theories about how a certain presidential candidate will affect the markets during the election year, how it may react as Election Day draws closer, and what will happen when they are in office. But be assured, there's a lot more to the workings of the financial markets than simply a presidential candidate or their political party. While an incumbent or new president may have some impact on the market, there are also many other factors to consider.
Election Years May Have Some Period of Volatility
Given that in most election cycles, US elections tend to be close and that it may be hard to predict who will win prior to election day, investors have historically tended to sell off, or lower holdings in the market as Election Day draws nearer. According to research, there are often many election years when the S&P 500 index may trade at higher levels and sees rallies leading up to election day, but then tend to become more volatile, and then slow down later in the summer.
Presidential Policies Also Matter
Because of the size and depth of the U.S. economy compared to the rest of the world, both domestic and foreign investors want to know what kind of policies the presidential candidates would be implementing if they get in office. Strong economic performances with an incumbent usually bode well for them, and a reelection may inspire even greater investor and consumer confidence. Plus, some analysts may say that the markets may favor the candidate whose policies would include deregulation across economic sectors, or bringing minimal government involvement into the economy. Although, if the economy has undergone troubled times, the markets may favor a candidate who intends to sign legislation aimed at stabilizing the economy.
Market Bubbles Can Override Incumbent Or Incoming Candidate
In some cases, you have actions that have been occurring in the markets that cannot be controlled no matter who the candidates are. These would include the three bubbles of the last century that caused a recession or depression that came from investor actions that had spurred bubbles. When President Herbert Hoover was elected in 1928, American consumers had been flooding into the stock market driving some stock prices up way too high and forming bubbles that led to the crash of 1929. And in 2000 and 2008, the market took a hit in both the beginning and end of the George W. Bush presidency thanks to both the dot-com crash and the subprime mortgage crisis. All that to say there are periods such as these where investor activity does not correspond with political activity.
Always Keep An Eye On The Fed
The actions of the Federal Reserve are also going to affect the market, and sometimes they may quietly act during election years. Not only can the Fed impact the market by raising and lowering interest rates especially during an election year, but don't forget that during periods of quantitative easing money can find its way into the stock market and artificially boost it. So while presidential candidates and congressmen do matter, never forget the Fed will always be a big player.
*Material presented is not intended as tax advice. For specific tax advice, please contact your own qualified tax professional.
Daniel S. Miller, CFP® is President of Miller Financial Group, Inc. with offices located in Bellevue, NE and Red Oak, IA. Dan and his team serve clients throughout the country as they prepare for the next stages of their financial lives. Dan is a published author of the book “Retirement Built to Last: Planning for When the Paychecks Stop” and has had articles published in the Wall Street Journal, Financial Advisors IQ, Successful farming and The Hill. He is also a dedicated husband, father, and advocate for the financial planning process and financial education.
Dan Miller, David Eads, Kaleb Robuck, and Marcus Taylor are investment adviser representatives of, and securities and advisory services are offered through, USA Financial Securities Corp. Member FINRA/SIPIC. A Registered Investment Advisor located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Services.
Although we can gain some confidence by evaluating past epidemics and their effect on the market, each situation is different and past performance is not indicative of future market movement.