Insight into the Stock Market after an Election Year

As eager as we may be for this Presidential campaign to end, it is still two weeks until election-day. We do not know who will win, but we know it will be either Secretary Clinton or Mr. Trump. The burning question is what will happen after the election – how will the stock markets react once the winner is determined? When asked that question Mike and I have to admit we do not know.

To gain insight into how the stock market, as reflected in the Dow Jones Index, reacted the year after an election, (the first 365 days of a new president), I have looked back at the eight times since 1950 that the winner of the election was neither the incumbent nor the party of the incumbent. The values shown below reflect the change in the Dow from the first day of the post-election year to the end of that year:

  1. 1953 – Eisenhower, a Republican was elected after 20 years of Democrats – the Dow dropped eleven points from 292 to 281, or 3%.
  2. 1961 – Kennedy, a Democrat became president and the Dow rose from 616 to 731 – about 19%.
  3. 1969 – Nixon, a Republican became president and the Dow dropped from 994 to 800 – 15%.
  4. 1977 – Carter, a Democrat, defeats Ford and the Dow falls from 1005 to 837 – 17%.
  5. 1981 – Reagan wins and the Dow drops 89 points or about 9%.
  6. 1993 – Clinton, moves into the White House – Dow gains from 3,301 to 3,754 – 14%.
  7. 2001- Bush 43 is elected and the Dow drops from 10,790 to 10,021 a fall of 7%.
  8. 2009 – Obama and the Democrats come to power and the market jumps from 8,666 to 10,428, a gain of 21%.

If you are doing the math you will observe that in all four of the times Republicans followed Democrats into office the market corrected; while, in two of the four times Democrats followed Republicans the market appreciated and two times it corrected. In my opinion this is coincidental not causal – many other events occurred to effect the market results – recessions, wars, assassinations, more recessions and more wars. The history of this country, the myriad of events that have occurred to effect security markets is more than just one election. We have elected bad, good and great presidents in the last 64 years and the Dow Jones index has gone from 292 to more than 18,000. We and the markets will again survive the 2016 election.

Because security markets dislike nothing more than uncertainty, and because of the dramatic differences in these two candidates, Mike and I have decided to limit our investment transactions until after the election. We will resume adding to portfolios once the outcome has been determined.

Be sure to vote on November 8th.