An upset worthy of hyperbole: Donald Trump will be our next president.
Almost immediately, the markets started reacting. US Futures dropped like a rock. Foreign markets dropped for real and then rebounded. Now, almost a week later, lots of folks are starting to interpret what a Trump presidency means. I wondered what typically happens shortly after an election. Let’s just stick with the S&P 500 and look at how it closed on November 1 (before an election) vs. December 1 (after an election). Maybe we can see how panicked or calm we should be…
Here’s a table showing the 1 month closing values and the % changes since 1900. If you’re wondering why that particular window, it covers a pretty significant span of US history and a range of tumultuous to halcyon periods. By the way, the S&P Data is from here. Special thanks to Robert Shiller for making it freely available. And, the Electoral College data is from here.
For all years since 1900 without a presidential election, the average one month change was a positive increase of 0.5% (standard deviation of 0035). For all election years in the same period, the one month change was a 0.3% increase (standard deviation of 0033). Here’s a histogram to help visualize things. See the overlap? The stats seem to suggest that for this time window, there’s no net benefit to either jumping into or out of the stock market in response to election results.
But, wait a minute. Aren’t Republican presidential candidates better for business and the stock market? In the days since The Donald was elected, the US stock market hit record highs. See! Well, let’s look at the data. For all election years in our data set, we can split the one month returns by the winning party. When Republicans win the White House or Democrats win the White House, there is no difference compared to non election years.
So, forget about non election years: let’s pit Democrats against Republicans directly. Since 1900, there have been 15 Republican presidential terms and 14 Democratic ones. Here’s the histogram of the one month change in the S & P 500. Visually, it looks like there might be something there: a couple more high returning years in red vs. blue. Again, the stats don’t show any meaningful difference between the two parties.
So, what’s the take-away? Warren Buffet’s sentiment: “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.” Despite all the rhetoric, punditry, and discord, America is a great nation to belong to.
Regardless of your political affiliations, invest. Invest for the long haul. Plant that seedling as soon as you can. It will grow into your own money tree.