Politics and the Stock Market

Politics and the Stock Market

Here is a quiz:  which year of a Presidential term has historically been the best for the stock market?  The answer is the third.  According to “thehill.com” the first, second and fourth year of a Presidential cycle have seen the stock market return an average of 9.9 percent, 9.0 percent and 9.8% respectively, while the third year has averaged 17 percent.

The mid-term elections are this November and historically they have gone badly for the party that holds the White House.  According to Nasdaq.com, in the last 18 mid-term elections since World War II, the party that held the White House lost an average of 25 House seats and 4 Senate seats.  Losses tend to increase when the same party controls the White House and Congress, with an average loss of 33 House seats and 5 Senate seats.  If the Democrats were to take over both chambers of Congress we would anticipate a tough time for defense stocks and a rebound in healthcare and alternative energy stocks.

Market volatility has picked up this year and the upcoming elections are another source of policy risk and uncertainty.  This could make for an even more volatile summer and fall.  The good news is stocks tend to rally after the election, regardless of the outcome, as uncertainty fades.

Hopefully now that you know how things usually play out in an election year you won’t be alarmed if the trend of higher volatility pre-election continues.  So, try to relax and enjoy your summer – it is going to be a long, hot one in many ways.

The Bond&Devick Team