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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

How Presidential Elections Impact the Stock Market: Data and Insights

With the presidential election approaching, there's a lot of speculation on how it might impact the stock market and your investment portfolio. Join John and Bridget as they delve into the historical data, analyze patterns, and provide insights on what (if anything) you should do with your portfolio during these uncertain times.

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John: With the presidential election coming up, there's a lot of talk about how that's going to affect the stock market. What should we do with our portfolios? That's going to be our topic on today's episode of Friends Talk Financial Planning. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. John, before we get into elections and your portfolio, please subscribe. We're trying to get to 1,000 subscribers, which is a benchmark that 90% of Youtubers don't get, and you can help by just hitting subscribe. All right, John, let's talk elections and the stock market. What is your first point on this topic?

John: Yeah, at midterm elections, we don't get too many questions about that, but every four years when the presidential election comes up, we tend to have a lot of conversations with clients about what's going on and how to think about it. And of course, people have their own views on who should or shouldn't get elected. But the underlying question that I get from folks is, what do we do about this? What do we do if this person gets elected or if that party gets elected? What happens? And how do we think about that?

And one of the things that can be really difficult with these sorts of decisions, Bridget, is how it feels. Oh, I think these folks are good for the country, for the economy. It's kind of personal to us when we're voting for who we want to represent our interests. And it feels like that should translate into our investments. But look at the data; that's the other thing that I talk about. What has actually happened? What does it actually look like? And that separation of facts and feelings is really useful to take a look at.

Bridget: Yeah. And I think sometimes the rhetoric can get so extreme that it seems that if the other party wins the presidential election, everything will fall off a cliff. And I think they're doing that to motivate people to act, but for some people, that's a lot of stress to take.

John: Right.

Bridget: I wish they wouldn't do that, but it's really to motivate people to act. And it can be hard to sort out, okay, what are the probabilities here of things falling off a cliff? And, jeez, they haven't in the past. That's what helps me sleep at night. However, that's what we're going to be looking at. What has happened in the past during elections?

John: One of the things that I learned from you in one of our past episodes was talking about tax law changes. And we hear these things a lot, but it ties into the election, because back in 2000 when the election came, and the Democrats had both the White House and Congress, one of the campaign pledges was, or one of the promises was changing the estate tax law. How do we do that? These are the things that come with that, and it can affect a lot of regular people.

Back when I first started doing this 100 years ago (or at least in the last century, maybe not 100 years ago, it just feels like that) we had a lot of regular folks that were subject to the estate tax. We had to do some kind of planning around that. It's not unrealistic. And then that was the campaign promise. But then reality can be so much different. And I remember you saying, “Well, listen, we'll deal with it when the new laws get passed.” And here we are, three and a half years later, not much in the way of those new laws from a tax standpoint on estate taxes. And I think that's the exact same thing that you're talking about. Hey, let's look at the facts.

And we'll bring up a slide here that just shows from the most recent election back 100 years in different presidential terms and what happened. And in blue, of course, are the Democratic presidents and in red are the Republican presidents. And what has the S&P 500 done over that time period? You can see on the top right there, a little under 10%. The market averages 10% over a long period of time, but you can see those numbers. And I'll ask clients, “What pattern do you see in there?” I'm curious. Bridget, what's the pattern you see in that?

Bridget: If I see a pattern, especially if you take Roosevelt into account on the bottom, blue seems to be better, but they don't talk about that. And that does not seem to be what blue says. And are we really going to consider Roosevelt a Democrat? Obviously, Democrats do claim him, but it was a pretty complicated situation.

John: Yeah. But I'll say, “You don't see a pattern in there? Really?” And they’ll ask, “What pattern should I see?” There is no pattern. Here's the pattern that I see when I look. That center line is zero, so anything to the left of there is negative returns over that four-year period. To the right are positive returns. In looking at that I see three, maybe four lines that are negative. I didn't add up the number. How many elections are there? 20 or 25 elections. I guess if we go back 100 years, it'd be 25. So you have 4 out of 25 that are negative and that means all the other year’s presidential terms are positive.

If I'm going to make a guess as to what happens based on whoever gets elected this November, it looks like there's a pretty good chance based on history that the returns are positive. And again, what else is there to take from that sort of thing? And to your point of talking about, the Democrats certainly in the blue there certainly have a good track record of stock market returns during their presidencies. That's not the feeling or the impression people have. If you were to just ask me without looking at the data, “Which party has had more favorable returns,” I wouldn't have said that necessarily.

Bridget: It doesn’t seem like one of the Democratic talking points. They don't seem to want to add it for whatever reason.

John: Part of it is just that it's so random. And, we didn't get into this, and we're not going to get into all the different factors. The presidential election gets the headlines, but what about Congress? What about all the other things that play into this is? How impactful is a President or Congress when they first take office versus their policies show up five or ten years later? There are all these other things. It’s not like we can just say, “Here's the answer.” I'm interested to hear your take, but for me, the answer is it just doesn't make that much difference.

One side versus the other side and the impact that a president can have on things is not that great. Not that there's no impact, but it’s not like we can say, “Well, if this person or this party gets in office, here's the direction.” Number one, I don’t see any real direction or difference between the two that it wouldn't be subject to or explainable by just pure luck. And number two, one side of the office doesn't drive all the economy or the stock market or all those things, even though it feels like it should. I want to know the answer to what happened. That's just not how it works in my mind.

Bridget: Well, and some changes take longer. I would say that the wall coming down helped the economy during the Clinton era. Well, okay, whom do you give credit to for that? And I don't think that the economy was the driving factor in wanting the wall to come down either. People didn’t say, “Oh, that's going to help our economy.” It was just kind of a side effect. And guess what? The Internet was coming on board right at the same time, too. So it could have been the Internet. Who knows?

John: Right.

Bridget: There’re so many different factors that you can't pinpoint one. I think people also want to know what about this year and next year? So what do you have for that?

John: Yeah, that's great. There's another slide here that talks about exactly that. All right, one question is who do we want to get elected? The answer is I don't think it makes much difference. We'll pull up this slide here. And in the blue lines on this are the same data going back 100 years with elections. What happens during the election year, then what happens in the year following the election year are the green lines. And so, let's just focus on the blue lines here. 2024, we're in an election year.

How many of those blue lines go to the left? There's a couple; four, I guess. Again, most of the time, what happens during election years? It's positive. So do we know about this year? I'm not going to predict, but on average we see positive returns. And for me, the other takeaway is what happens in years after. We have an election year in November, next January, the president gets inaugurated, whoever that is. What happens then? And when you look at those green lines, there's a lot more green lines that go to the left.

So if I'm concerned about anything right now, maybe not so much during the election year, but what happens following that. And I'll give you the spoiler alert. Even in those following years I think it's all white noise. I don't think we can predict things. But if anything, this information tells me not to worry about this year and probably not to worry about next year either, but more so next than this. What's your take as you look at this?

Bridget: Yeah, I would say, geez, it's actually a little better than I would have thought for the year during the election, but how many presidents do we have. We have a data set of like 20. That's not enough to create a…

John: Statistically significant.

Bridget: Right. I’ll have to add tongue twisters to my daily habits. Yeah, it's just not enough data to really form a big opinion about what's going to happen. And we've got one more slide. Again, overall, what ends up happening is that the market typically marches higher.

John: Yeah.

Bridget: And it doesn't depend that much, if at all, on the who's president or what party affiliation they are. And there's another cross tab that has who's in Congress. And certainly, the politicians have some impact on the stock market, but exactly what it is when it happens, etc. is very difficult to predict. But generally, the stock market goes up. So having a well-diversified portfolio is what hits the spot.

John: That's right. That's my takeaway, too. Even if we knew who was going to be elected, we don't change the investment philosophy and our financial planning. The elections are very important for a lot of reasons, but your investments are not one of those reasons.

Bridget: Awesome. I think that's a great place to wrap it up. I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. Both Bridget and I are taking on new clients, but we're also both members of the Alliance of Comprehensive Planners, so if you like what you hear on our show and want to find an advisor in your local area, you can check out

Bridget: And please subscribe.


At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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