US Presidential election day is here! As the votes start to be counted, investors ask themselves: will stocks finally find their way back up, after performing poorly through most of the fourth quarter so far?
Take Apple, for example. Shares have been on a decline since the September 1 peak, as I reported in more detail late last week. The stock is still down about 17% from those all-time highs.
Of course, it is impossible to know exactly what will happen to Apple shares after election day. But intuitively, the end of the election cycle should bring more stability and certainty to the markets, which could be good news for Apple.
Today, I look at how Apple stock and the S&P 500 performed in the days following US Presidential elections since the early 1980s, when Apple went public. Maybe history can tell us what to expect next.
Nine elections in Apple’s history
Apple IPO’d in December 1980, only a few weeks after then-Republican candidate Ronald Reagan took over the White House in a landslide victory over Democratic President Jimmy Carter. Of course, that year’s election probably had little to do with how Apple shares performed as a “very young stock”.
Since then, there have been nine US Presidential Elections in Apple’s history as a public company. Here are some fun facts:
- Republicans won the race five times, while Democrats won four
- The S&P 500 performed better under Democratic presidents by an average difference of nearly 8% per year
- However, the opposite has happened with Apple, which produced 5% higher annual returns, on average, during Republican administrations.
Short term reaction
Certainly, it is hard to tell if Apple’s stock performance had anything to do with who was sitting behind the Resolute desk.
For instance, the three years leading up to the Great Recession of 2008 were phenomenal for Apple. Cross out 2005-2007, and Apple would have performed better under Democratic leadership. Did George W. Bush had anything to do with Apple’s share price rising during the period, or was the stock simply a beneficiary of the last stage of the economic expansion?
So, I believe it is more useful to look at the stock’s “knee jerk” reaction to the end of the US Presidential race. Let’s see what the data has to say:
- On average, regardless of elections, Apple’s rolling one-month returns, in annualized terms, have been 32.5% since the IPO. But in the month following the election, the returns were negative on average, by -6.4%. The range, mind you, was very wide: -20% non-annualized in 2000 (the year of the dot-com bubble burst also coincided with the contested race between George Bush and Al Gore) to +25% in 2004.
- On average, regardless of elections, Apple’s rolling one-year returns have been 33.6% since the IPO. But in the year following the election, the returns were only 15.4% on average. The range was also very wide, from -39% in 1992 to +115% in 2004.
- On average, the S&P 500 also performed worse-than-average in the month following the nine previous election days. However, the forward-year performance was better following elections, by a significant average difference of 2.5 percentage points.
See graph below depicting Apple’s one-month and one-year returns following US Presidential Elections. Keep in mind that the numbers below are annualized.
Of course, maybe US Presidents and the election cycles had little to do with the past performance of Apple stock. It is hard to cleanly separate how much share price reaction can be attributed to political developments vs. business fundamentals or macroeconomic factors.
However, a couple of conclusions can be drawn from the data analysis above: (1) Apple has historically performed worse-than-average following elections, although (2) the performance range has been so wide that it is hard to know if the underperformance has been a trend or just noise.
In any case, my thesis that “the end of the election cycle should bring more stability and certainty to the markets, which could be good news for Apple” may not hold much water in the end.
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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)