Historical Effect of Presidential Elections on the Financial Markets Lee Biggerstaff

Importance to You Election every 4 years Some correlation between elections and market movements Historical trends combined with fundamental analysis may help produce better returns

Flaws Lots of externalities that effect the stock market Short term market movers verses long term market trends

Long Run verses Short Run

Market Movements the Month after the Election Markets do better in the weeks after a Republican is elected Market is consistently positive after a Republican victory and negative after a Democratic victory

Average Returns during 4 year Terms Large-Cap No statistical difference No statistical differenceSmall-Cap Better performers under Democrats Bonds Better performers under Republicans

Large Cap Stocks No statically significant difference between a republican or democrat in office SP500 shows average 4 year return of 30% for Republicans and 34% for Democrats

Small Cap Stocks Average real returns of 22.66% during Democratic administrations Average real returns of 3.70% during Republican administrations

Bonds Long-term corporate bonds and governments bonds yield real returns that are negative during Democratic administrations These bonds are consistently positive during Republican administrations

Inner-term Market movements Years 1 and 2 show lower returns on both large cap and small cap stocks Years 3 and 4 show higher returns to both large cap and small cap stocks No inner-term differences on bond rates

Conclusion Market Timing Large caps not as effected by President Small caps respond better to Democrats Bonds respond better to Republicans