Highlights: What History Tells Us About Elections and the Market
Investors often wonder whether the market will rise or fall based on who is elected president. The data show that capturing the long-term returns of the capital markets does not depend on which party controls the White House. In a recent webcast, Dimensional’s Mark Gochnour and Jake DeKinder offered lessons from history.
Well, and that's another series of questions
that we're starting to get here in the last few months
around the election.
We've got a big election
that's coming up here in the U.S. later this year,
and investors are wanting to know that
if this person goes into the white house,
or if this person stays in the white house,
what's that gonna mean for the economy,
and what's that gonna mean for my portfolio?
And I love this slide that we've got up here,
'cause I think that really starts to get this idea
of, it's very challenging
to draw a definitive conclusion.
Now, Mark, let me ask you a question here.
Do you see some type of pattern in the data?
Do I see a pattern?
In here we're looking at the S&P 500,
and what was the return of the S&P
during these different presidential time periods?
And I absolutely do not see a pattern.
I'm glad at your answer.
Because I think it'd be very hard
to draw some conclusion or some connection
between this person or this party is in power,
is in the white house,
and therefore, this is going to happen
in the market.
And the reality is, it's just not that clean.
I think we, as investors,
we wanna be able to draw a definitive connection
between here is what happened or
here is what's going to happen with the election,
and therefore this is going to happen
with the market.
And why is that so hard?
It's because so many different factors
are gonna come in and affect stock prices.
You're spot on, on that.
As investors, we kinda tend to simplify things to say,
this is the single thing that's going to drive the future
to the stock market.
But your point, there's many, many things
that impact stock prices, right?
It could be an election,
it could be what oil prices are going to do,
it could be what interest rates are going to do,
it could be what other countries are going to do,
there's hundreds, if not thousands of things out there
impacting prices on a daily basis.
Well, and that's not to say
that the president doesn't have impact on stock prices,
or impacting the economy.
The president of the United States does,
just like the president of other countries does,
just like prime ministers do.
All of these factors are coming in
and affecting stock prices.
So, it's really hard to say,
this party goes into power, here's what happens
in the markets.
And I like this other chart
that we've got right here as well, Mark.
And what we're gonna look at here
is we're gonna look at this long-term growth
of a dollar through these different administrations.
And by the way, we can take this
and we can break it down by control of Congress as well.
Are the Republicans in power?
Are the Democrats in power?
Is it a mixed Congress?
And again, you can't tell much
from this party's in control of Congress
and this is what's gonna happen,
but when I look at this chart,
I really like this chart because,
putting aside my personal political views,
and you probably wanna do that to an extent
as an investor,
I look at this chart and say,
you know what,
regardless of who's in power,
I like this long-term growth of capitalism over time.
That's what I wanna capture, right?
Regardless of it's Democrats or Republicans,
if I'm a long-term investor,
and I think about the long-term returns of capital markets,
I wanna stay invested through this time period.