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  • Writer's pictureRobert Baharian

This One Chart...What the US election means for stocks

This is a game of pure speculation - speculating who the US President will be, and what impact this will have on the stock market. Quite frankly, no one knows. I think Presidents get a lot of the blame and take a lot of the credit for the performance of the stock market during their tenure. Truth is though, the President's ability to influence the economy and the stock market is both indirect and marginal.

I've expressed my point of view as it relates to US elections and the impact on stocks here, here, and here. And this time is no different. I fundamentally believe history is the best guide we have, so let's take a look at how the stock market has performed (total return) 12 months following a Democratic President.

Since 1988 we've had two Presidents run two terms (four in total), Clinton and Obama. And under each of these terms the stock market has been higher by 8.9%, 12.1%, 25.1%, and 33.8% respectively.

You can slice and dice this how you want. The reality is that the longer you are invested in the stock market, the odds of a positive return increases, it's as simple as that. The effect of governments, presidents, policy etc., have a marginal impact on this stuff. Here is the probability of a positive return for each time horizon:

1 Day - 53%

1 Month - 63%

3 Months - 69%

1 Year - 77%

3 Years - 87%

5 Years - 92%

10 Years - 97%

What you can see is that the probability of positive returns increase dramatically the longer the investment horizon. Am I saying these are guaranteed? Of course note. They are simply probabilities.

Do you think business owners, founders, CEO's or CFO's make decisions based on who is governing the country? Who the president is? What the tax rate is? Or do you think business owners and operators make decisions based on what will make the most amount of money, increase shareholder value, or take market share at that time? I just don't think the stock market cares who the president is, and neither should you. It's so easy, yet so hard.


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