In the average year after a new president is elected, since 1928, the S&P 500 rises 5.8%, according to research from the Schwab Center For Financial Research. If you know much about the markets, that number is underwhelming at best. The average annual return on the S&P 500 in almost the past century is a touch under 10%.
But what’s important to remember here is that markets are driven by so many different factors, so it’s really hard to pinpoint one element, like a political outcome, as something that is sure to create a repeated market outcome.
Maybe a business-friendly presidential candidate with a good shot of winning the election would be “good” for stocks. But maybe Congress won’t be composed of all business-friendly politicians and legislation will have to be written with compromises. Or maybe these policies will be fully implemented, but other global headwinds will drag the market, or hold it back a bit.
One might also think that a drastic political regime change would move the market substantially.
Well, let's look at what happened to stocks after Ronald Reagan was inaugurated in January 1981.
Reagan made drastic tax cuts for corporations, households and capital gains in financial markets. And he relaxed business regulations. For 1981, the S&P 500 fell 11%. Still, it is important to point out that the S&P 500 rose 17% in 1980, a year in which the market began to anticipate Reagan’s election. And if you watch TheSteet, you know markets are forward-looking.
For President Trump, the story initially went as many had thought it would go: stocks would have a great year after he was elected. Trump was inaugurated in January of 2017. In 2016, the S&P rose almost 20%. In late 2017, the Tax Cuts and Jobs Act, which cut corporate taxes to 21% from 35% and cut individual taxes as well, was passed.
Markets were anticipating this and the S&P rose 23%. Importantly, the stock market in this time was also powered by continued innovation from tech giants like Google (GOOGL) - Get Alphabet Inc. Class A Report, Amazon (AMZN) - Get Amazon.com, Inc. Report and Facebook (FB) - Get Facebook, Inc. Class A Report.
For the final wrap on how to incorporate this into your investment planning, watch the quick video above.
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