The long-awaited elections are finally over – and believe it or not the next election cycle has already kicked off. And that will affect markets for the next two years as the incumbent tries to keep the economy moving. We are about 7 weeks from a new year, so let’s look at some history.
While I am the first to admit I have no idea what the markets are going to do in the next year, it is interesting to look at what has happened in the past. History shows us the third year of the presidential term has almost always been good for stock markets and its even better if it is the first presidential term. With a divided Congress and extremely positive economic momentum (reduced corporate taxes and regulation, full employment, rising wages and no major external challenges) the current administration has every incentive to kick start making market friendly decisions ahead of the next election.
Since 1950, average third-year of a presidential term has experienced 16% market returns and 18% from November of the election year to the middle of the third year of the presidential term. With GDP growth above 3%, we have more momentum to our economy which may yield even higher returns.
If we consider only first term third presidential year the average S&P 500 returns were even sweeter with returns averaging 20.37% and median returns of 20%. Since 1950, the third year returns in the first term presidential year were never a negative one but have averaged 20%.
Given the state of our economy and the growth prospects and business friendly policies and recent market correction, it is possible of getting market returns even higher than normal.
Of course, past performance is no indicator of future performance. There are 1,000s of moving parts to an economy, both in the US and internationally, that could cause this third year to not follow historical patterns. We should discuss your unique individual situation and position your investments to reflect your unique situation.
(HT – Lakeland Wealth Management)