Political Pollution

What if I told you I had a rock solid market indicator? It uses one signal to move out of stocks ahead of danger.

Here are the results of its last two signals:

• 11/06/2012 it says sell. Over the next 12 months, the S&P 500 goes on to return 26%.
• 11/08/2016 it says sell. Over the next 12 months, the S&P 500 goes on to return 23%.

Not so great, huh? So what’s our mystery indicator? The outcomes of the two most recent presidential elections, and general consensus heading into them.

The lesson to learn from our mystery indicator: binary investment decisions based on presidential elections are a fool’s game.

In 2012, the narrative was that Barack Obama’s re-election would be “bad for stocks”:

In 2016, the narrative was that a Donald Trump victory would “tank the market”:

I’ll concede that a sample size of two events with returns going twelve months out is far from scientific, so let’s take a look at the long term stock market returns under the two major political parties:

Here are the returns under all presidents since the 1920s, which we would have as much luck divining something from as we would reading tea leaves:

As 2020 winds on, we will inevitably hear intelligent-sounding premonitions of what either candidates’ win or loss will do for the markets. Based on the pitiful past results of such fortune-telling, I wouldn’t recommend paying much attention. It’s far more important to have a grip on your own financial situation, goals, and plan than it is to predict what a certain individual’s impact on the market will be. This is especially true when the evidence suggests the US economy and markets do well over time because of our people, not necessarily who’s in charge.

Don’t allow political pollution to interfere with your investments.