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Last week, the S&P 500 fell nearly 6%, its worst week since the coronavirus rudely entered our lives in March.
Investors
wish they could take a long weekend in Aruba, but in 2020 there’s no
such thing: Tomorrow is Election Day, which will determine what party
holds power in D.C. for the next few years.
What does that mean for stocks?
Bank of America Global Research analyzed historic S&P performance under presidents from both parties. The takeaways:
- The market’s average return has been higher under Democratic presidents than it’s been under Republicans.
- Regardless of party, the S&P performs better in a president’s first term than in the second.
- Finally, stocks have performed better when leadership changes from one political party to the other.
Now do Congress
The White
House is just one branch of government that’s up for grabs on Tuesday.
Voters will choose new members of Congress, the body tasked with
checking the power of the presidency, passing laws that shape economic
policy, and controlling spending.
The state of those races: Democrats
are expected to expand their majority in the House of Representatives,
while the Senate, which is currently led by Republicans, could flip to blue.
What does BofA say about historic stock market performance with different parties in charge of Capitol Hill?
- Stocks have typically
gained more when either party holds a simple majority in the Senate—not
more than 60 of the 100 seats. It doesn’t really matter the party.
But read
these numbers with a kernel of NaCl. BofA reminds us that a limited
dataset, wide standard deviations, and the fact that political parties
change over time mean this analysis may not win the Nobel Prize in
Economics.
And this is
all long-term perspective. In the near term, President Trump or
potentially President Biden will be confronting a volatile market that’s
most sensitive to developments related to the pandemic.
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