During election years, the market tends to go up. Since 1928, the S&P 500 index total return has been 11.25% according to Morningstar and Ibbotson Associates. Should history hold again in 2020, an 11% return this year on top of 2019’s spectacular 31.5% return, would represent a two year haul of nearly 43%.
Two of the oft cited reasons for election year boons are that incumbents tend to unleash voter friendly initiatives such as tax cuts or spending programs on items such as infrastructure or Medicare. The other reason is that incumbents tend to win, and when incumbents win, there’s little to no change in policies, and if there’s one thing markets love it’s predictability. Said differently, one thing markets hate are surprises. That’s one reason the political gridlock, so infuriating to taxpayers, is manna to investors.
Yet at the dawning of 2020 the possibility of surprises stretch as far as the eye can see. Will we get a trade deal with China? Will hostilities with Iran continue to escalate? Will we confront North Korea? Will Russia interfere with our elections? Will the president be impeached, or perhaps worse, be tried in such a way that provokes a constitutional crisis? In light of these and other developments, can markets produce an 11% return?
In 1996, when Bill Clinton won a second term, the market returned about 23%. But still:
– The Taliban, who few in America ever heard of captured the Kabul, capital of Afghanistan.
– The year started with a government shutdown over a budget impasse.
– The People’s Republic of China conducted surface-to-surface missile testing and military exercises off the Taiwanese coast.
- The Whitewater investigation into the Clintons was in full swing.
- Osama bin Laden declared jihad against Americans.
It’s been 24 years since these developments made headlines and time tends to diminish their severity. Still, the the market was able to climb the wall of worry in 1996, and it just may be able to climb it again in 2020.
Election year returns