Election Predictions

Ready or not, 2024 is right around the corner. A myriad of events await us in the new year! We kick off the year with an extra day in February, there’s the highly anticipated total solar eclipse in April (don’t miss it; the next one isn’t until 2044!), the Summer Olympics return to Paris, and the pinnacle moment—the presidential election in November. As the election season approaches, bringing with it the inevitable cacophony of political discourse, we think it makes sense to reflect on previous elections and how historical events inform our investment and planning approach.

In preparation for writing this article, I went back and read one of Benton Bragg’s Investment Commentary writeups from 2016, It’s Always Tuesday Morning: Timing the Market. One line in particular stood out to me:

There are a host of reasons why the market may fall dramatically starting tomorrow: weakness in Europe, Japan, and emerging markets, Trump, debt, nuclear war, Middle East instability, oil, central bank policies, inflation, deflation, super-virus, interest rates, natural disaster, terrorism, valuations, and the list goes on. 

Save for a few words, this passage could just as easily have been written today or fifteen years ago. The uncertainties we face as investors and citizens are just as confounding now as they were in the past. Even equipped with this knowledge, it is still so easy to get swept up in the noise coming from 24-hour news networks and social media. The noise can leave us unsettled and desperate for any semblance of prediction of what may happen.

In retrospect, election-related predictions often take unexpected turns, with market dynamics defying conventional wisdom. Let’s revisit some market-related forecasts from past elections and observe the surprising (or maybe not so surprising) results.

• Prediction: “Obama’s energy policies, emphasizing wind and solar, to impact the market.” (An Obama Market: What Stocks Could Fare Best. CNBC. Nov. 5, 2008)
• Result: First Solar (FSLR), a major U.S. solar equipment producer, plunged 74%, becoming the worst-performing S&P 500 stock during the Obama administration.

Continuing with the energy theme—a sector analysts seem to think correlates highly with which party is in power—here’s another forecast related to Former President Trump.

• Prediction: “President-elect Trump’s promise to revive the coal industry is viewed as negative for alternative energy companies.” (Solar stocks hammered as sector expected to lose out in Trump administration. MarketWatch. Nov. 9, 2016)
• Result: Solar stocks Enphase Energy (ENPH) and SolarEdge Tech (SEDG) emerged as top performers in the Russell 1,000 during Trump’s presidency, with gains of approximately 8,500% and 1,270%, respectively.

Energy has predictably been an area that the experts focused on for Biden, and there is still time for “experts” to get it right that President Biden will be bad for oil companies. However, from November 2020 to 2023, the Vanguard Energy ETF (VDE), a comprehensive oil stock fund, is presently surpassing the S&P 500, boasting a growth of +244.15% compared to +46.07% for the broader S&P index.

For a non-energy-related forecast, consider this prediction from 2020:

• Prediction: “A tough-on-banks Biden administration could hit one lender in particular: Wells Fargo & Co, which has been operating under a Fed-imposed cap on its growth since 2018.” (Election 2020: What Biden’s Win Means for Key Industries and Business Issues. Wall Street Journal. Nov. 8, 2020)
• Result: The Financials sector has outperformed the market from November 2020 to 2023, with Wells Fargo outperforming the S&P 500 +123.46% to +46.07%.

One thing each of the last three presidents has in common is that the S&P 500 achieved a new record high during each of their terms in office. In fact, since 1950, the US large cap benchmark has failed to achieve a new record high under only one president: Ford, whose term was shortened due to Nixon’s resignation.

Furthermore, since 1929, only four presidential terms have experienced negative returns for the S&P 500 on an annualized basis. Said another way, the S&P 500 had positive annualized returns in 19 of the last 23 presidential terms. The average annualized return for a president’s term was nearly 10%.

When we look at this chart, it is difficult to divine any sort of theme or correlation with regard to political party and market returns. As Ben Rose points out in his article 2020 Election, the market has historically rewarded long-term investors regardless of the presidential party.

If you still find yourself feeling uneasy about the outcome of the election and its implications for our nation, take a moment to reflect on the wisdom of Warren Buffett: “For 240 years, it’s been a terrible mistake to bet against America, and now is no time to start.” Regardless of who emerges victorious in November, the fundamental strength of our country and its economy endures.

As you may look for other sources of comfort in what promises to be a wild election cycle, we suggest directing your attention to aspects of your financial situation that we can actively manage. Is your portfolio aligned with your risk tolerance and time horizon? Does it offer the necessary liquidity during market fluctuations? Are you optimizing tax strategies annually? When was the last time you reviewed your estate plan? These elements are well within our control and hold more influence over our peace of mind than the electoral decisions in Pennsylvania, Michigan, and Georgia next fall.

Finally, although we try to stay out of the predictions game, I will leave you with a few. After election day Apple will continue selling iPhones, Amazon will deliver your packages, Duke Energy will keep your lights on, and Bragg Financial will be here to guide you through all your financial needs, regardless of who occupies the Oval Office.

This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.