The document discusses whether presidential election years affect stock market performance. It finds that while election years have historically seen above-average returns, this is likely due to coincidence rather than any proven relationship. Recent election years like 2000 and 2008 saw losses, contradicting the theory. Investors should not try to time the market based on elections and instead focus on long-term investing.

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Stock the Vote: Do Presidential Elections Affect Markets?
By Matthew Carvalho, CFA, CFP®, Loring Ward Director, Investment Research
With the 2012 political conventions for both Republicans and coincidences related to a small sample set of political election
Democrats just around the corner, there’s no doubt that the results. Investors with a long time horizon should not try to out-
Presidential Election year excitement is hitting its peak. When it think the market, but instead enjoy stock market gains whenever
comes to the stock market, you may even see headlines noting they occur.
that Presidential election year returns are often abnormally high.
Election Year S&P 500 Performance
But have election years really been the best time to invest? Across 1928–2011
all Presidential elections since 1928 the average return on the
50%
S&P 500 is 11.02%.1 Sounds like a strong number until you
consider the average return over the entire time frame of 1928
25%
to 2011 was actually slightly higher at 11.46%!2
So how did this myth begin? From 1928-2000, only two Presi-
0%
?
dential election years saw negative returns, meaning that about
90% of the years saw positive returns, averaging nearly 15%!2
-25%
Secondly the second half of the four year Presidential cycle tends Annual
Election Year Average
to see strong returns, not necessarily just the last year. On average -50%
the first two years see gains of 8.54%, while the last two years
1928
1932
1936
1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
average 14.39%.2
Looking at the data we must conclude that savvy investors should The S&P data are provided by Standard & Poor’s Index Services Group.
only stay invested during the third and fourth years of the cycle
The S&P 500 (Standard & Poor’s 500 Index) is a broad-based US
and remain on the sidelines the rest of the time, right? Wrong.
equity index. The S&P 500 Index is an unmanaged market value-
It’s easy to find patterns in large amounts of statistical data. Yet
weighted index of 500 stocks that are traded on the NYSE, AMEX
patterns are only helpful if they can be relied upon to continue.
and NASDAQ. The weightings make each company’s influence
Investors who believed whole-heartedly in the election cycle on the index performance directly proportional to that company’s
theory would have been extremely disappointed with several of market value.
the recent election year results — a loss of 37% in 2008 and 9%
Indexes are unmanaged baskets of securities that are not available for
in 2000. What had previously looked like a surefire bet is now
direct investment by investor. Their performance does not reflect
indistinguishable from the long-term average.
the expenses associated with the management of actual portfolios
Risk and return are related; nobody is able to predict market including, but not limited to tax deductions and management fees.
returns in advance. Yet some investing maxims stick around past Past performance is no guarantee of future results, and values
their prime. Capitalism and the capital markets have proven to fluctuate. All investments involve risk, including the loss of principal.
be strong wealth creators in the long term, stronger than any
1
United States Elections Project
2
Data Source: DFA Returns 2.0
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