Election Year 2016 — Here We Go Again

This election year has already seen its share of high drama. As both political parties seem to be shaking out to a core number of candidates, one must remember it is still early in the election year. Each new caucus or primary seems to change the headlines of who is leading each party. Federal policies surrounding issues such as the economy, the federal deficit, health care, immigration and foreign policy are highly dependent on the outcome of the presidential election as well as congressional seats, making it particularly difficult for the pundits to predict what the full platforms will be for this year.

Potential power split could mean more Congressional deadlock

The Republican party’s current majority in the House of Representatives, where they hold 246 out of the 435 seats, is likely to be maintained regardless of who sits in the White House. The probable outcome in the Senate is less obvious, where the Republicans hold a 54 to 44 seat majority. This could shift in the upcoming election, and political experts believe that whichever party wins the presidency will also control the Senate. Therefore, if a Republican takes the White House, this is likely to mean a Republican-controlled Congress, which may make it easier to enact policy change. Conversely, if a Democrat wins, the country could end up with the same political stalemate that exists today.

Markets are historically weakest in year four

Uncertainty of any kind, be it political or economic, is typically not helpful for upward market momentum. With the exception of 2011, the third year of presidential terms in recent election cycles has resulted in the strongest market performance. This could be the result of spending to stimulate the economy and paint as positive a picture as possible.

S&P 500 Return in Third Year of Recent Presidencies

President Pre-Election Year S&P Return
Nixon 1971 14.3%
Carter 1979 18.4%
Reagan 1983 22.5%
Bush I 1991 30.6%
Clinton 1995 37.4%
Bush II 2003 28.7%
Obama 2011 1.9%

Source: PNC, S&P

Presidential election years in the post-World War II era have proven to be the weakest for domestic equity markets. The scenario worsens when we consider open election years, where there is no incumbent. According to research from the Ned Davis Research Group, S&P 500 returns averaged 9.0% in incumbent years versus -6.6% in open years.

Volatility ahead

On top of the domestic theatrics unfolding, uncertainty driven the oil situation and the global economy are also having a strong impact on the markets. This makes it difficult to predict how much election year uncertainty will influence market performance. The S&P 500 is down approximately 10% for the year as of the third week of February 2016. Only six election years since 1896 have experienced declines above 5%, although the last two occurred in 2000 and 2008, the most recent cycles. We anticipate, given the uncertain domestic and global environment, that volatility will continue through 2016. We maintain our recommended allocations and our emphasis on quality, while carefully monitoring the markets, global economic data, and unforeseen events.

Asset Management

Developing and executing an investment strategy that encompasses every aspect of your financial life

Learn More »

Contact Us

View all Wealth Management & Hawthorn Office Locations »

Important Legal Disclosures and Information

The material presented in this article is of a general nature and does not constitute the provision by PNC of investment, legal, tax, or accounting advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed herein are subject to change without notice. The information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs. For more information, please contact PNC at 1-888-762-6226.

The PNC Financial Services Group, Inc. (“PNC”) uses the marketing names PNC Wealth Management® and Hawthorn, PNC Family Wealth® to provide investment, wealth management, and fiduciary services through its subsidiary, PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and to provide specific fiduciary and agency services through its subsidiary, PNC Delaware Trust Company or PNC Ohio Trust Company. PNC also uses the marketing names PNC Institutional Asset ManagementSM, PNC Retirement SolutionsSM, Vested Interest®, and PNC Institutional Advisory SolutionsSM for the various discretionary and non-discretionary institutional investment activities conducted through PNC Bank and through PNC’s subsidiary PNC Capital Advisors, LLC, a registered investment adviser (“PNC Capital Advisors”). Standalone custody, escrow, and directed trustee services; FDIC-insured banking products and services; and lending of funds are also provided through PNC Bank. Securities products, brokerage services, and managed account advisory services are offered by PNC Investments LLC, a registered broker-dealer and a registered investment adviser and member of FINRA and SIPC. Insurance products may be provided through PNC Insurance Services, LLC, a licensed insurance agency affiliate of PNC, or through licensed insurance agencies that are not affiliated with PNC; in either case a licensed insurance affiliate may receive compensation if you choose to purchase insurance through these programs. A decision to purchase insurance will not affect the cost or availability of other products or services from PNC or its affiliates. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”). Investment management and related products and services provided to a “municipal entity” or “obligated person” regarding “proceeds of municipal securities” (as such terms are defined in the Act) will be provided by PNC Capital Advisors.

“PNC Wealth Management,” “Hawthorn, PNC Family Wealth,” and “Vested Interest” are registered trademarks and “PNC Institutional Asset Management,” “PNC Retirement Solutions,” and “PNC Institutional Advisory Solutions” are service marks of The PNC Financial Services Group, Inc.


Investments: Not FDIC Insured. No Bank Guarantee. May Lose Value.

Insurance: Not FDIC Insured. No Bank or Federal Government Guarantee. Not a Deposit. May Lose Value.