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
Small-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