Every four years, the U.S. presidential election can have a substantial impact on monetary and fiscal policy. The markets are significantly affected as well so how does this affect the common shareholder?
Over the past 90 years, it has been detected that both equity and bond markets had more stagnant performance in the year leading up to the election. For example, in a typical 12-month period there is generally a 8-8.5% return on the S&P 500, but in the year leading up to a presidential election, gains are only around 6% on average. Bond markets yield around 6.5% leading up to the election whereas 7.5% in a typical 12-month period.
It is important to pay close attention to specific market sectors in election years. Government healthcare policy seems subject to change depending on the party in power as well the energy sector.
There is reason to be wary about your portfolio, but returns are made over a a full business cycle rather than a single presidential term. The biggest advice is to pay attention to how certain policies enacted may affect your portfolio in a positive or negative way.
I would never have thought about addressing my financial portfolios differently based on the current political state of the US. I understand that parties have different policies and those have varying effects on the economy, so it does make sense that we should change our actions accordingly.
ReplyDeleteThis is a great thing to be made aware of. I would have never thought to ensure my investments match the president's views to be more effective in the long run. I am glad to know about this new indicator when making these future decisions.
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ReplyDeletePolitical policies play an compelling effect in America’s economy. It makes sense but it is interesting to see that investors should be paying attention to that when it comes to equity or bonds markets, as we don't see election as necessarily the major prompter of portfolios.
ReplyDeleteI believe I've heard of certain things that affect the market even though they are not directly related. We hear that the market goes in cycles where after a economic boom often results in a economic decline in the future. This is a interesting metric that can be a key measure in helping forecast when deciding to invest.
ReplyDeleteWhy do policy changes cause the markets to be stagnant more often than making them boom?
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