History Tells me Investors Shouldn’t Fear the U.S. Presidential Election

Investors are nervous about the coming US presidential election. However, my research tells me these fears are misplaced.

Greetings Friends,

I hope everyone had a fun Labor Day.

My weekend was great. I went to a party on Friday. A 20-mile bike ride on Saturday. Another party on Sunday. And another 20-mile bike ride on Monday.

Summer doesn’t officially end until September 21. I’m hoping for more warm weather.

In the meantime investors are turning their attention back to the stock market.

After a long weekend with friends, family and clients its clear investors have something on their minds. Let me explain.

Although you would never know it from the non stop fear mongering of the media – the global and US stock markets are quietly having a very good year.

The chart below shows the total return in 2016 for three leading stock indices.

Emerging markets have led the pack. The global and US stock markets have also been strong.

• iShares MSCI Emerging Markets (NYSE: EEM): 19.7%
• S&P 500 (NYSE: SPY): 9.6%
• Vanguard Total World Stock Market (NYSE: VT): 9.4%

Despite the solid performance, investors are more nervous than usual.

A few of my clients have asked me about taking money out of stocks and putting it into cash or bonds for the next few months.

What are they nervous about?

The US presidential election.

Download my free report to keep reading….

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In order to provide my clients with unbiased data to help them navigate uncertainty, I did some research on the performance of US stocks and election cycles.

Here are three things you need to know.

1.) History Shows no Reason for Investors to Fear the U.S. Presidential Election

When conducting a study on the correlation between US stocks and election years, there are literally a million different data points to look at and a million different ways to analyze that data.

For example, taking a look at 50 studies, half would say election years are good for stocks while the other half would say they are bad.

Sorting through all that noise and all that data – here’s what I think you need to know.

Since 1960 the S&P 500 has averaged a 6.5% return in election years versus 7.9% for non election years.

However, this average is heavily impacted by the financial crisis in 2008 when the S&P 500 fell more than 50%.

Excluding 2008, the S&P was up an average of 9.1% annually versus 8.8% in election years.

Take a look below at the return distributions below.

I think this is the best way to look at an election year – from a longer term perspective. What this data shows is that on average, the S&P 500 does well in an election year.

Is the 2016 election unique? Is there a glaring reason why stocks would take a nose dive?

I don’t think so. That brings me to my second point.

2.) Ignore the Medias Constant Fear Mongering

Remember back in July when Britain was voting on whether to stay in the European Union (EU). At the time, analysts and the media were having a core meltdown. They spent a month explaining why global stock markets would implode if Britain left the EU.

Well guess what? Britain did leave the EU – and today the UK economy is holding steady and the stock market is trading just below its 52-week high.

That’s another way of saying the financial media was 100% completely wrong.

The media loves creating false drama. It’s good for revenue.

You know who else loves volatility?

The entire financial industry from brokerage firms to big banks to hedge funds.

Volatility makes the financial industry more profitable.

They generate additional trading commissions because of higher trading volumes.

Their short-term trading strategies are more profitable.

And in the long run, they load up on stocks while regular investors sell at the exact wrong time.

My suggestion here is don’t listen to the media. They are self serving entities that will not help you manage your portfolio and optimize your returns.

3.) When it Comes to Investing Focus on the Big Picture

Unless you need your cash in two years, don’t worry about short-term volatility in the stock market.

Sure, the S&P 500 could fall 10% in the next few months. And that probably wouldn’t be real fun. But that’s a normal part of an otherwise healthy market.

In the long run, stocks spend a hell of a lot more time moving up than moving down.

Remember, U.S. companies and the S&P 500 are extremely resilient.

In the last five years the S&P 500 has confronted one huge challenge after another. Greece threatening the EU, the price of oil crashing, China’s weird economy, take your pick. Plenty of bad news.

Through it all, the index just hit a new all-time high.

Investors who pulled out of stocks listening to all that noise have missed out on solid returns.

The Take Away