- Stocks perform better in the one year following a presidential election when the incumbent wins reelection rather than when a new president comes into office, according to LPL.
- Stocks returned an average 10% and were positive 71% of the time in the one year following a president winning reelection, LPL observed.
- Comparatively, stocks returned an average of 5% and were higher 50% of the time in the one year following a new president winning the election, according to LPL.
- “Usually when a president wins reelection, it means the economy is going pretty strong, so stocks tend to do well,” LPL’s Chief Market Strategist Ryan Detrick said.
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The stock market has performed better in the one year following a president winning reelection compared to the one year following a new president coming into office, according to a Wednesday note from LPL.
Since 1950, the S&P 500 has returned an average of 9.6% in the year after a president wins reelection, with the market being positive 71% of the time, LPL observed.
The reelection of Presidents Bill Clinton, Barack Obama, and Ronald Reagan delivered the highest one-year S&P 500 returns of 31%, 30%, and 26%, respectively.
“Think about it—usually when a president wins reelection, it means the economy is going pretty strong, so stocks tend to do well,” LPL’s Chief Market Strategist Ryan Detrick said.
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Alternatively, when new leadership entered the White House, the S&P 500 returned an average of just 4.8% and was positive only 50% of the time in the following year.
The election of presidents George H.W. Bush, Barack Obama, and John F. Kennedy delivered the highest one-year returns of 27%, 24%, and 23%, respectively.
The weakest one-year returns occurred with the election of presidents George W. Bush, Jimmy Carter, and Richard Nixon, delivering returns of -13%, -12%, and -11%, respectively.
“New leadership in Washington can bring with it potential change that could rock the boat and hold stocks back,” Detrick said.
But next year’s performance of the S&P 500 could differ from the historical trend if Democratic presidential nominee Joe Biden wins the November election, as investors expect more stimulus and government spending under a Biden presidency, according to UBS.
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