Hi everyone, I'm Liz Ann Sonders, and this is the October market snapshot. Well, it's that time of the year, everybody. We're in the homestretch to the presidential election and questions about what it has meant, what it might mean for the stock market have been pouring in. We do not profess to have a crystal ball into the future. Never try to time the market, especially around election outcomes. And we also make it a habit to never wade into partisan politics. So consider this video more about historical facts without partisan color commentary. Also, this video is an accompaniment to a written report Kevin Gordon and I penned last week on the same subject, with this video covering the history of stock market performance; while the written report dives into economic performance as well. So check that out on Schwab.com.
[Table for Presidential elections and S&P 500 is displayed]
But here let's start with a look at the relationship between the party in the White House and historical stock market performance. This table shows every presidential administration over the full history of the S&P 500; broken out by each of the four years of election cycles. Now as shown in the summary at the bottom, the best performance (and the highest win rate) for the market has historically come in the pre-election year, regardless of the party in the White House.
Now so far in this cycle, the market has been somewhat on point. Had a weak 2022 (that was the midterm year in this cycle), a strong 2023 (that was the pre-election year). However, this year has been out of historic character given the market's strong performance so far.
[Republican average S&P 500 performance is displayed]
Now breaking it out by political party, perhaps in contrast to conventional wisdom, performance has been less robust when Republicans were in the White House.
[Democrat average S&P 500 performance is displayed]
On the other hand, performance has been stronger when Democrats were in the White House—across all four years of cycles historically. Now a caveat here, which is not shown in the table: there are more blue rows than red rows but if you annualize the historical performance, it's actually pretty close to a dead heat in terms of the performance comparison under Democrats vs. Republicans.
[Table for Government divisions and Dow performance is displayed]
Now let's take an even longer term look at market performance, but let's bring Congress into the mix given that obviously there's more to the political party story than just the White House. This handy table here shows the Dow Jones Industrial Average, which dates back to the turn of the last century, and it's broken into all six broad possible outcomes.
As you can see, the best performance historically was when a Democrat was in the White House, but Congress was split. An important caveat here is the very low historical percentage of time we've had that breakdown. Now the next best performance, unfortunately with only a slightly higher historical percentage in terms of occurrence, was when a Democrat was in the White House and Republicans controlled Congress. On the other side of the coin, the worst performance historically was when a Republican was in the White House alongside a split Congress.
[Quilt chart for Sector performance during election years is displayed]
So keeping on the theme of not tying broad market performance in with who takes control of the White House, the same rings true with sector performance. Now I guess it's tempting to forecast leadership trends based on potential policies of an administration, but that's really a fool's errand. History shows that macroeconomic forces are typically much more important in determining sector behavior, evidenced here.
This sector quilt shows performance in every election year back to 1992, when the so-called GICS sector classification was created by S&P and MSCI. Now there are a handful of takeaways from this; primarily that there is no consistency when it has come to leadership. Always a favorite to talk about—yes, Tech holds the status of being the best performer for three election years. And, of course, 2024 is not complete yet, but Tech also experienced dramatic declines in 2000, in 2008.
[Quilt chart for Average sector performance for 1992-2020 election years is displayed]
Now the average performance for Tech is less than 4% across all election years. That puts it in seventh place out of 11 sectors. Perhaps equally as fascinating is that traditional defensive sectors experience better performance, on average, relative to what we often refer to as the growth trio of Tech, Communication Services, Consumer Discretionary. That doesn't mean that election years have been de facto risk offs. Consider that the best years for Consumer Staples and Utilities were in 2008 and 2000, respectively.
Now the average column shows here that the reality is, on average, there is just no consistency in leadership during election years. And it really adds to the proof statement about the benefits of diversification across asset class, within asset classes and even among sectors.
Now an anecdote worth mentioning—given the tendency for investors to make assumptions about political party proposed policies, sector biases—this is around the performance of the Energy sector over the past near eight years. Now the Energy sector within the S&P 500 is dominated by traditional energy companies; without any exposure to direct green energy, renewables. Now, obviously, former President Trump is considered to be pro-traditional energy, and President Biden and Vice President Harris are considered to be pro-green energy. I know that's a generalization, but let's posit that.
Well, here's what has actually occurred in terms of performance. From inauguration day to inauguration day, under the Trump administration, not only was Energy the worst performing sector…it was actually the only sector with negative performance. Over that four year span, the Energy sector was down nearly 40%, with the second worst performing sector up 20%. Fast forward to the period since the Biden Harris administration inauguration and through yesterday's close, the Energy sector is the single best performing sector—up 112%, which is about 20 percentage points better performance than the second ranked sector. That's Technology. Now that is NOT to say that secretly Trump was anti-traditional energy or that Biden-Harris were secretly pro-traditional energy. It's to say that many, many, many other factors influence market and sector performance.
[High/Low Chart for Time IN the market for investing only under a Republican or Democrat president is displayed]
Now let's end with what I think of as the proverbial exclamation point on this analysis. Going back to the end of World War II, an investor having put $10,000 into the S&P 500, but having it in the market only when a Republican was in the White House, saw that $10,000 investment grow to about $311,000 by the end of 2023. On the other hand, $10,000 invested only when a Democrat was in the White House had grown to more than $1.2 million by the end of 2023. Fine, fact, but shame on anyone who stops analysis there.
[High/Low Chart for Stayed invested throughout 1948-2023 is displayed]
If instead of focusing on whether the Oval Office was proverbially painted red or blue, the investor instead just kept the $10,000 invested over the entire span, it would have grown to nearly, get this, $38 million by the end of 2023. I don't know about any of you, I'll take the $38 million all day.
[List of Takeaways is displayed]
Now let's sum things up. Yes, stocks have performed better when Democrats were President…but there's way more to the story. Splits and party control have been accompanied by better market behavior; in terms of sector performance, that's historically been all over the map. Most importantly, remember the old adage that time IN the market matters more than timing the market—especially around elections. Let me just conclude by saying we all know this is an emotional year, but be mindful of not letting emotions run your investment decision making. That's it for this month. Thanks, as always for tuning in and I'll see you all again in a month when hopefully election uncertainty will be behind us.
[Disclosures and Definitions are displayed]
