Presidential election effect/impact on stock market

With the Presidential election coming up quickly, investors may wonder how it will impact the stock market. In general, a lot is at stake if the incumbent president does not return to White House. Policies such as U.S. foreign policy, healthcare, and the tax code can all undergo radical change. An election’s impact goes far beyond just economic policy though. There are a number of different theories on how each election directly affects the stock market. Yale Hirsch, an investment advisor, and Ned Davis’s research caution that the first year after the election, the stock market posts its weakest returns of the four year cycle. In the most recent elections, this theory has not held up as strong though. Another theory simply deals with the fact that when a Republican wins, stocks tend to run up, and when a Democrat takes office, stocks will tend to run down. This is because of the policy change affecting tax cuts, and the general feeling of slow growth with Democrats. Again, there are cycles when these theories don’t hold true but for the most part have been accepted. Even more important to stock performance may actually be based on the political party in control of Congress. According to historical data analyzed by MFS Investment Management, the combination of a Democratic President and a Republican Congress has produced the best returns dating back to 1961. Once the election occurs and a President is determined, it may be a little easier to predict which theory may stick for the next four years. The only thing for certain is that the presidential election will have a great impact economically as well as an effect on the stock market.


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