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Which U.S. Presidential Candidate Is Better For Stocks?

Sep 26, 2016

Which U.S. Presidential Candidate Is Better For Stocks?

By Ron Delegge | September 21, 2016

Hillary or Donald? Which U.S. presidential candidate would be better for the stock market?

A poll among investors by E*Trade in July revealed that 45% believe Clinton would be a better president for the stock market versus 34% for Trump. Another survey by Bloomberg Politics/Morning Consult found that registered voters with more than $50,000 invested in the stock market favor Clinton (46% of respondents) compared to just 36% for Trump.

Although the unscientific poll results among investors seem to favor Clinton over Trump, the race to be the next president remains a tight battle. Remarkably, the political uncertainty created by the closeness of this particular presidential race—and we know the stock market hates uncertainty—hasn’t fazed equity performance one iota.

Funds linked to key benchmarks such as the SPDR Dow Jones Industrial Average ETF (DIA), Fidelity NASDAQ Composite Index Tracking Stock ETF (ONEQ), and SPDR S&P 500 ETF (SPY) have gained between 5.45% to 6.31% since the beginning of the year. Likewise, stock market fear as measured by the CBOE Volatility Index, or VIX, has slid around 40% after peaking in early February.

A longer term view of stock market performance during presidential election years shows a strong bullish bias. Going back to 1950, the S&P 500 rose 81% of the time for an average return of 6.6%, according to the Schwab Center for Financial Research. The data includes election years like 2000 and 2008 when stocks suffered declines of -10.1% and -38.5% respectively.

Sector wise, the Financial Select Sector SPDR Fund (XLF) gained the most during election years, rising 8.8% on average from 1992 to 2014. Meanwhile, the SPDR S&P Telecom ETF (XTL) fared the worst with average losses of -6.0%. This year’s performance of both financial and telecom, however, has not followed the historical script. The XLF fund, for example, is ahead by only 1.55% year-to-date compared to a sizzling 15.25% gain for the XTL fund.

Looking ahead, the first year of the presidential term has tended to be the most difficult for equities. Although stocks enjoyed an average return of 6.5% when they rose, they were only up 56% of the time, according to Schwab’s data going back to 1950.

A presidential victory by the non-incumbent party over the past 50 years has resulted in a stock market bottom within two years, except for 1994. Interestingly, this same market bottoming trend in stock prices held true for incumbent parties that kept the White House. What does it mean? While the future never repeats history verbatim, it could portend tougher times ahead for stock market investors regardless of who becomes the next U.S. president.

Ron DeLegge is Founder and Chief Portfolio Strategist at ETFguide.