• Charles Heighton

All eyes are on the US election, but does the result matter for markets?


By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets


As we quickly approach the US election, investors are focused on the result. President Trump has claimed that a Biden win would have a disaxstrous effect on the economy and on his beloved stock market, but the facts do not support such an assertion.


Indeed, data does not seem to reveal the existence of a causal relationship between the party in power and the performance of the markets. For instance, the above chart shows the average S&P return during the terms of recent Presidents. If the outlier observed during the Great Depression under Hoover is ignored, then the difference in return between the two parties is minimal. In addition, it can be noticed that the Democrats have actually been in power for less losing periods than the Republicans, which goes against public sentiment.


Consequently, this may imply that investors should be apolitical based on the data. Although in this election the possibility of stimulus, if there is a Democrat Sweep, would be highly beneficial for the US economy, this could be offset by any tax hikes. The prospect of a contested election does present some risk this year if the winner is not known or agreed upon for weeks if not months. This uncertainty could have a large detrimental effect on markets.


No one can predict with complete certainty the winner of this election, but this data suggests that investors should not be worried. Regardless of who wins, the market will probably rally barring an economic event. Biden will likely not be an exception to this rule, just as Trump wasn’t before him, contrary to claims that the markets would fall disastrously if he was elected.


Despite the claims of President Trump, perhaps the man in the Oval office has little effect on stock markets. That is certainly what history suggests. In fairness, however, Trump’s short-term ability to move markets based on tweets is an outlier. Moreover, this chart also does not show the rally that has occurred in 2020, which may bump Trump up in the rankings. Yet, even if this rally is added, Trump is nowhere near being the best ever president for the markets. I am sure that he would love this title, possibly more than a second term. Unfortunately, this time around he will not get it. Perhaps he might get a second chance for such a prize; we will soon find out.

Sources:

https://ritholtz.com/wp-content/uploads/2020/10/prez-returns.png


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