The 2016 presidential election, which feels like it has been going on for years, has hit its stride with the Super Tuesday primaries whittling the field down to a few candidates; only eight more months of campaigning to go.
Given that it is an election year is there anything we can infer about investment expectations for the year?
Historically, in the final year of a second term president the S&P 500 has fallen 1.2% on average and has been up only 44% of the time. Why has this been the case? Pundits say it’s because of the lack of clarity about the future direction of the country and presidents in the eighth year of their presidency don’t have to worry about reelection and are more apt to push through policy initiatives through executive order that might be controversial.
However, there are a multitude of other factors driving the markets from corporate earnings to economic reports to changes abroad. In addition, the negative return in a presidents’ 8th year is almost entirely due to the -41% return seen in 2008 with the onset of the financial crisis.
We put no stock in an investment strategy looking to benefit from an election year. While the US stock market has been down more often then it has been up historically this does not mean the same thing will happen this year. We continue to believe that timing the market is counterproductive and only by remaining invested can an investor benefit from upswings in the market. Adjusting your portfolio in 2016 based on the election is not a sound strategy and could leave you wanting to make your portfolio great again.
Index Performance Feb. YTD Trl 1 Yr
US Stock (Russell 3000) -0.03% -5.67% -7.84%
Foreign Stock (FTSE AW ex US) -1.25% -8.00% -16.56%
Total US Bond Mkt. (BarCap Aggregate) 0.71% 2.10% 1.50%
Short US Gov. Bonds (BarCap Gov 1-5 Yr) 0.24% 1.31% 1.77%
Municipal Bonds (BarCap 1-10yr Muni) 0.24% 1.31% 3.07%
Cash (ML 3Month T-Bill) 0.02% 0.03% 0.08%
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