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How Do Presidential Elections Affect The Stock Market?
As the presidential election nears, the candidates are making their final campaign pushes, and the media is churning out election-related headlines at an all-time high. This can be a lonely time for investors; despite a busy third-quarter earnings season, news about the stock market is taking a backseat to the latest email hacks and video leaks.
Election Cycle Trends
While this year’s election cycle has been uniquely contested, the battle between Hillary Clinton and Donald Trump provides what nearly every election provides: uncertainty. This race is close, and the polls have already proven their ability to change in an instant. It’s likely that we won’t be able to call a winner until Election Day.
As investors, we typically associate uncertainty with volatile stock performance. It makes sense—we want to make sure our portfolios are protected, and we are inherently more likely to buy when we feel confident and comfortable.
Nevertheless, presidential election years are not historically poor years for the stock market. In fact, it’s quite the opposite: markets have gone up in 17 out of 21 presidential election years since the Great Depression.
For more information on the behavior of the stock market during election cycles, check out this infographic from Option Alpha:
As you’ll notice, the election years in which the stock market underperforms are the years in which we elect a new president. Of course, with President Obama on his way out, this year is one of those “new president” years.
With the S&P 500 (SPY - Free Report) up about 4.8% year-to-date, perhaps the 2016 election will prove itself to be even more unique by defying the historical trends of the market.
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