Over The Last 60 Years, Which Included 16 Election Years, S&P 500 Index Has Given Positive Returns In 14 Election Years, i.e. 87.5% Of The Time
Over a period of the last 60 years (1956 to 2016), which included 16 presidential elections in the US, the S&P 500 Index has given positive returns in 14 of these election years, which means a positive performance 87.5% of the time.
Highest return of 32.4% was in the year 1980, following which Reagan (Republican) was elected president, whereas, the lowest return of -37% was in 2008, when Obama (Democrat) won.
The index has given a double-digit return in 6 election years leading to a Republican victory, and 4 times before a Democrat was elected.
S&P 500 Index Annual Return In Election Years
Average Index Return During Election Year When A Republican Is Elected Is 11.8%, Above The Average Return Of 9.8%; Whereas Average Market Return Before A Democrat Is Elected Is Below Average At 7.2%
The S&P 500 index average return for all election years from 1956 to 2016 is 9.8%
However, average return during the election year leading to a Republican president being elected is above average, at 11.8%
At the same time, the index has returned only 7.2% leading up to a Democrat winning the race.
Average Index Return For All Elections Years (Last 60 years)
Average Index Return For Year Before Republican Wins
Average Index Return For Year Before Democrat Wins
Market Returns When There Is Change In The Party That Won The Election
Average index return in the year leading to a change in the party which wins the presidential race is low at 5.2%, suggesting that on most occasions, the market has not been very buoyant when there was a higher chance of the incumbent party losing the election.
It would be interesting to see the next one year return from this perspective as well.
Average Index Return Before Change In Party Elected
Can The Next 1 Year Market Trend Predict Trump's Fate?
As we have seen from the past trend, a thumbs up from the market has generally been followed by a Republican getting elected, except in the case of a Democrat being re-elected, when the average return has been 18.5%. However, this is not a possibility in 2020 as the incumbent is a Republican.Thus, currently it would be helpful to focus on market performance during election years when the incumbent president is a Republican.During elections when a Republican candidate is elected after a Republican, the index has performed very well with the average return during such election years being 11.9%.At the same time, average annual return when a Democrat is elected after a Republican is -1.3%. However, even if we discard the negative return of -37% for 2008 (as the economy was gripped by the global financial crisis), the average return during such election years was 10.7%, lower than the 11.9% leading to a Republican getting re-elected.If past market and election trends are anything to go by, a healthy market return over the next one year could indicate and increase the likelihood of a favorable outcome for Mr. Trump.Whereas, subdued market return (mostly single-digit return) could send the alarm bells ringing in the Republican camp.