We continue to receive many questions from clients interested to understand how the approaching election might affect markets. Below is a chart of the Dow Jones Industrial Average and its average performance during election years. All election years since 1900 have been plotted, the average of which is the solid black line on the chart.
As can be seen, the market tends to slide early in the year due to the uncertainty of the process, but improves as most of the negatives are already discounted or priced in at the point. Then there is often another dose of uncertainty, as candidates develop their general election platforms and unveil specifics of proposed policy changes, beginning in Sept/Oct before a rally into the end of the year. There is also a clear difference in performance if the incumbent party wins vs loses. The yellow line shows the market having a strong rally in the fourth quarter when the incumbent party (the Democrats in this election) wins. The red line shows the Sept-Oct period much rockier and a shallower recovery in the fourth quarter when the incumbent party loses.
The current year (the blue dashed line) is closely tracking the incumbent party winning trajectory. With Hypermind1, a prediction based website, showing Hillary Clinton more likely to win the elections (63% probability vs. Donald Trump’s 35%) it appears the market is predicting a Clinton win as well. Unless these odds begin to change, we continue to expect that the upcoming election will have a positive impact on the domestic stock market.
Past performance is no guarantee of future results.
Dow Jones Industrial Average is an unmanaged index which cannot be invested into directly.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
1 “Who will win the White House?”, hypermind.com, Sep.09, 2016