Posted: 05 Nov 2020 11:58 AM PST
While we all anxiously await the final count and outcome of
the U.S. Presidential Election, here are some possible scenarios for 2021. Our
analysis here is based on historical market performance during the most likely political
alignments for next year. We ran these likely scenarios through the Almanac
database software to create this graph.
We are either going to have the fifth year of a two-term
republican president or a first year of a new democratic presidency. It appears
the democrats will hold the house and the republicans will hold the senate, but
that is not a forgone conclusion either. So we also examined both presidential
outcomes with a democratic, republican and split congress.
Our study uses the S&P 500 from 1949 to 2017. We start in 1949 because it is the first full
4-Year Presidential Stock Market Cycle since the end of WWII. The Twenty-Second
Amendment that implemented presidential term limits for a max of two terms or
eight years was ratified on February 27, 1951. Truman in 1949 was excluded as
there was a no change of party in the White House. We gave Bush 41 the same
Admittedly, there are limited data points; four each of
fifth year republicans and first year democrats. Here’s what we found. A change
in party with a new, first year democratic president came with democratic
control of Congress and significantly higher performance for the S&P 500,
averaging 10.6% with a median gain of 15.1% versus 7.0% for the average
post-election year since 1949.
Fifth year republican presidents in 1957 (Eisenhower) and 1973
(Nixon) had to work with democratically controlled Congresses and the market
suffered significant losses. The market did well in Reagan’s fifth year with a
split Congress – a testament to how “The Great Communicator” was able to work
across the aisle with then Speaker of the House Tip O’Neill. Even with
republican control of Congress under Bush 43’s fifth year, the market had a
tough year with ongoing issues in Iraq, North Korea declaring it’s a nuclear
power and the most active and second costliest hurricane season on record.