Election days are here again

Impact of the election cycle on the market

So far this election cycle appears to be unlike any other in recent U.S. history. On one side we have a popular real estate mogul with no formal government experience and on the other, the United States first female presidential candidate from a major political party. Perhaps similar to other elections, there is a great deal of contentiousness, even beyond political views, between the Democratic and Republican candidates.

Analysts often look at the course of a presidential term to see if there are any patterns in the markets for different years in the cycle. In previous election and re-election cycles, certain patterns did appear in market returns. However, many past election trends do not appear to hold true anymore. For example, from the 1960s on, the strongest market typically occurred in the third year of a president’s first term in office, with the exception of 2011. To date, in the post-Great Recession environment, this trend has not been borne out, as we saw in the last election, when the 2011 return was the lowest of the four-year period.

Election years are usually good for the markets

Market returns in election years historically tend to be positive, although those election years when the incumbent is not up for re-election historically have fared less well. The median return of the S&P 500 in election years since 1928 is 9%. Out of the 21 elections that have taken place during that period, returns have been positive over 70% of the time. In addition, there have been market rallies of at least 10% during an election year, with the median rally coming in at 17.2%. For election years in which a correction occurred, corrections tended to be in the -10.3% range. We can safely say that this election year has already covered both in terms of a correction and a rally, thanks to the volatility of the first quarter of the year, as well as the short-lived impact of Brexit. Although we are coming into the home stretch of the election cycle, there is still a high degree of uncertainty surrounding the outcome.

 A balance of party power

The markets seem to prefer a balance of power rather than one political party controlling both the executive and legislative branches of government. Historically, a mixed Congress, with party power split between the Senate and the House of Representatives, appears most conducive to positive market returns.

What’s ahead as the election gets closer?

We now know previous election year trends no longer seem to hold true, so examining past election cycles to shed light on what the markets may do during this one is unlikely to bear fruit. Certainly, with emotions and opinions running high on both ends of the political spectrum, we anticipate that volatility could increase as we get closer to Election Day.

Gains Under Various Configurations of Party
of President and Majority Party in Congress

March 4, 1901 to August 7, 2012

Market Correction Stocks
Industrial Production Inflation
Real Stock Returns Long-Term Gov't Bonds* Fed Dollar**
Democratic President 7.73% 5.26% 4.44% 3.14% 3.84% 0.11%
Republican President 2.95 1.80 1.80 1.13 7.75 -1.42
Democrat Congress 6.01 4.48 4.36 1.59 5.54 -1.11
Republican Congress 3.57 1.45 0.65 2.89 6.39 -0.23
Dem. Pres. Dem Cong. 7.26 6.29 4.60 2.54 2.89 -2.24
Dem. Pres. Rep. Cong. 9.63 1.11 3.79 5.63 8.14 4.00
Rep. Pres. Rep. Cong. 1.62 1.56 -0.37 2.00 5.48 -4.24
Rep. Pres. Dem. Cong. 4.32 2.04 4.01 0.30 8.99 -0.56
All Periods Buy/Hold 5.13 3.38 3.01 2.06 5.77 -0.91

*Data since 1925
**Data since 1971
Note: Majority party = Party with average control in House and in Senate Greater than 50%
Source: Ned Davis Research, PNC

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 newsletter 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.

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 Management®, PNC Retirement Solutions®, Vested Interest®, and PNC Institutional Advisory Solutions® 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,” “Vested Interest,” “PNC Institutional Asset Management,” “PNC Retirement Solutions,” and “PNC Institutional Advisory Solutions” are registered 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.