September 11, 2024

The markets don’t care about the election

Americans are passionate about politics and interest in the Nov. 5 election is reaching a fever pitch. But while voters are all in for their favored candidate, the markets are saying, “meh.”

That was the word from Brian Levitt, global market strategist with Invesco, during a recent webinar by the National Association for Fixed Annuities.

People may care about elections, but the markets don’t, Levitt said, and presented several examples to back up that claim.

A June 30 Gallup poll asked voters what they believe to be the most important problem facing the U.S. today. The top answers were: the economy in general, the high cost of living, the federal budget deficit, immigration, poor leadership and unifying the country. But Levitt said those problems are nothing new; they have been top concerns since the Founding Fathers were alive. He quoted George Washington as saying, “The distemper in our nation is … certainly incurable.”

Voters often believe that one party or one president “will come along and be terrible for the market,” Levitt said, but history shows that belief is false. Looking at stock market returns versus economic growth from the Eisenhower administration through the Biden presidency showed economic growth in every one of those eras. “The U.S. economy is quite a vibrant thing,” Levitt said.

Also between the Eisenhower and Biden presidencies, every administration except for Richard Nixon and George W. Bush presided over a stock market that produced positive returns.

“Markets do well under most presidencies, and markets do well under both parties,” Levitt said. “With Nixon and Bush, it was more about bad timing. Both of them left office under really bad recessions.”

The range of market returns has generally been similar across administrations, he said. Looking at the S&P 500 index, rolling daily one-year returns by administration since 1961 showed most presidents experienced 30%-40% gains at some point and 20%-40% declines at some point during their terms in office.

Are you better off investing in the market only during a Democratic administration, only during a Republican administration, or remaining fully invested no matter what party is in charge? Levitt said the evidence is overwhelmingly in favor of remaining fully invested.

As each presidential election approaches, voters are often told that “this will be the most important election of our lives,” Levitt said, and again, the markets don’t care. He cited the 2016 campaign between Hillary Rodham Clinton and Donald Trump, and the 2020 campaign between Trump and Joe Biden as examples.

“Clinton said in 2016 if Trump wins, he’ll treat the economy like he treats one of his casinos and bankrupt it. Trump said Biden would make your 401(k) go to zero,” Levitt said. “But how did Trump and Biden do during their first 960 days in office? About the same. They both saw a cumulative advance in the S&P of 65%, 70%. They saw the market go big out of the gate, down in the second year and then recovering.”

The direction of the economy and what the Federal Reserve will do are more important than who sits in the White House, Levitt said.

“We have to remember through all of this that there’s a policy platform to get elected. If you get elected, you need to see what the legislative branch looks like, then you need to determine what your political mandate is and go after a couple of things. Historically, you lose power by the midterms. Often, the politician, if they win, may decide that what they ran on was not their political mandate. It was just how to get elected. They may not have the Congress as approval for what they want to do, and ultimately they end up getting one or two major things done.”

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