Newspaper article Charleston Gazette Mail

Are the Financial Markets Voting Early?

Newspaper article Charleston Gazette Mail

Are the Financial Markets Voting Early?

Article excerpt

Well, here we are in the thick of another election cycle, wondering who will come out on top. I have to admit, I generally enjoy watching the political circus and contemplating its outcome. This one is shaping up to be a doozy no matter from which side of the aisle you cheer.

I frequently hear political concerns from clients who are deciding their investment allocations. Do election years and the eventual outcome have significant implications for your investment plans?

Over the past few months I have read many articles about how elections years have historically affected the markets.

A recent article from CNBC.com about financial markets during a presidential election year indicated the S&P 500 averages a return of -1.4 percent in the eighth year of an administration since 1944. The worst of these eighth year returns was -41 percent in 2008. At first glance, the outlook for the year looks pretty ominous, but let's dig a little deeper.

The first item I take issue with is the sample size used in these calculations. There have only been four presidents since 1944 to complete an eighth year. Given the normal volatility of the market, it is impossible to infer any significant statistical meaning with such a small sample.

Secondly, one of the four samples was a -41 percent year, but the losses only averaged -1.4 percent. After doing a little digging, it turns out that two of the four election year samples were positive.

Bottom line, in my opinion, is that this is lazy, junk journalism written to fulfill an existing narrative. Nothing sells better than doom.

Just because I do not believe we can rely on the past to determine this year's market performance, doesn't mean political policies don't affect investment considerations. The problem we face as investors is that with all of the unknowable variables involved, the outcome in the short term is guess work. …

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