The presidential election campaign is turning the corner with the Democratic convention this week. In four months the country will elect a new president who will take office in January 2017. From a trading viewpoint we wonder how does the stock market react to presidential elections. Kiplinger looks at the presidential election and its effect on stocks.
Since 1833, the Dow Jones industrial average has gained an average of 10.4% in the year before a presidential election, and nearly 6%, on average, in the election year. By contrast, the first and second years of a president’s term see average gains of 2.5% and 4.2%, respectively. A notable recent exception to decent election-year returns: 2008, when the Dow sank nearly 34%.
Looking back to 1900, Democrats have been slightly better for stocks, with the Dow up an average of nearly 9% annually when the Democrats are in control, compared with nearly 6% per year during Republican administrations.
There is an opinion not borne by the facts that a divided government is good for business and for stocks because such a situation saves each party from following through on its worst instincts. However, it turns out that the market does about the same when one party controls both the executive and legislative branches as when control is split. Will it make a difference this year if Trump and the throw the bums approach wins or Hillary Clinton with years government experience prevails?
Trump and the Stock Market
Our sister site, ProfitableInvestingTips.com asked what would a Trump presidency mean for stocks.
Although it’s impossible to know who will win, many speculate that a Trump presidency would send the economy and stock market into a downward spiral. Experts are also drawing parallels between the audacious Trump campaign and the recent Brexit vote. His supporters, like leave voters, are tired with the status quo and would do anything to see that change. If the offbeat republican happens to win the White House, there are few themes investors should watch.
On the other hand if he builds the wall it will help construction stocks.
Clinton and the Market
Because of her long record of public service more is known about Hillary Clinton and more might be guessed about what a Clinton presidency would mean for stocks. Kiplinger offers 7 suggestions based on policies that would be implemented in a Clinton administration.
- Cognizant Tech Solutions
- Hospital Corporation of America
- Lockheed Martin
- Marriott International
- Sun Power
- Toll Brothers
- Wal-Mart Stores
Although one can more easily predict what Clinton will pursue in the oval office as opposed to Trump there is the issue of Republican resistance to every single thing that she proposes. A true Clinton presidency will probably require democratic control of both houses of congress which might be a stretch.
The Flip Side
Turn the question around and you can ask how do presidential elections react to the stock market. That one is easy. A bull market favors the party in power and a bear market favors the party that has been out of power. Clinton will want the current strong market to continue and Trump will be hoping for a crash.