Truth be told, 2020 has certainly turned out to be full of surprises – with the ongoing COVID-19 pandemic showing up as a primary contributor. But the upcoming elections in November will likely be another surprise in some form or fashion. The candidates and their platforms have already been receiving widespread media coverage and we are starting to see a variety of predictions of how different outcomes might influence stock market performance. Many of these predictions use some form of analysis of past election cycles as justification. That is because there was a particular outcome previously and it is probably what will happen this year if the stars align similarly.
Historical election trends may not be all that helpful in assessing current stock market trends. For example, the average return for the two months of November and December in election years is 3.5% since 1960, with an average return of 3.7% in years where a Democrat was elected President and an average of 3.4% when a Republican was elected President. However, the range of outcomes ranged from -14.7% to +15.7%. The stock market’s reaction this time around will undoubtedly end up confounding many current predictions if based upon a factor like this or other statistics generated from historical election data.
Because these elections only happen every four years, we just do not have a lot of data to rely upon. In addition, Washington politics and shifting party agendas lack any strong consistency over time and can change quickly as events unfold both domestically and abroad. The current stock market is also reacting to a different election-year market environment than ever before, including the weight of cyclical stocks in the S&P 500, 10-Year Treasury yields, GDP growth, and earnings per share growth having never been lower and P/E’s having never been higher. This makes 2020 especially challenging and compels extra caution in drawing any broad conclusions from the predictions.
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All information herein has been prepared solely for informational purposes only and opinions are subject to change. Past performance is not indicative of future results and all investments involve the risk of loss of principal. For information on how these general principles apply to your situation, consult an investment professional.
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