POLITICAL CONTROL AND THE USE STOCK MARKET (AVERAGE ANNUAL RETURNS 1950-2019*)
*NOTE: Average annual S&P 500 Total Return Index. Source: AthenaInvest, Inc. and S&P Dow Jones Indices LLC
The chart shows various combinations of White House and Congressional control since 1950. Returns range from 8.6% to 18.5%, with an average of 12.7%. The worst periods have been when Democrats control Congress and Republicans control the White House. The best periods have been when Republicans control Congress and Democrats control the White House.
Most of the time the political environment is mixed with policy and other significant changes getting bogged down by the legislative process and the subsequent effects of policy felt over time with both intended and unintended consequences. While interesting, there is little conclusive research directly linking election results to market returns or consistent effective ways to invest upon them.
Politics generate strong emotions that translate into deeply rooted biases and opinions along with powerful urges to act upon them, often by staying on the sidelines or jumping into the market, before or after the election, depending on your point of view. However, for the typical investor trying to navigate political events is unlikely to outperform the long-term average of 12.7%. While politics are an important part of our civic lives, don’t let them derail your investments. Stick to your long-term investment process.
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