With our elections right around the corner, there is often uncertainty about how a change in political leadership could impact the markets. History suggests the relationship between government control and investment returns may be more nuanced than headlines imply.

 

Since 1871, periods of unified government (when the same political party controls the White House and both chambers of Congress) have produced average 2-year annualized returns of 8.2% for the S&P 500, compared with 5.8% during periods of divided government. At first glance, these figures appear to favor unified government.

However, the picture changes when recessions are excluded. During expansions, divided government has produced 11.4% 2-year annualized returns, compared with 9.8% under unified government over the same time period.  This distinction highlights an important consideration - market performance is influenced by far more than election outcomes, or which party controls Washington. Economic growth, inflation, interest rates, corporate earnings, investor expectations and valuations all play significant roles in shaping returns. Recessions, in particular, can have an outsized impact on long-term averages and may help explain the differences between these historical results.

 

The takeaway? Political control alone is not a reliable predictor of future market performance. While elections can create short-term volatility as investors assess potential policy changes, making investment decisions based solely on political outcomes risks overlooking the broader economic and market forces that ultimately drive portfolio outcomes.  Rather than trying to position a portfolio around election results, investors may be better served by maintaining a disciplined, valuation-conscious investment approach that adapts to changing market conditions and remains focused on long-term objectives.

 

 

 

Disclosures

Integrated Capital Management, Inc. is an SEC Registered Investment Advisor. Registration does not imply any certain level of skill or training. This blog is intended solely to report on various investment views held by Integrated Capital Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security.

Past performance is no guarantee of future results. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Where applicable, portfolio characteristics are shown gross of fees.

Any capital markets views are intended solely to report on various investment views held by Integrated Capital Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Outlook may change at any time given shifting market conditions. Past performance is no guarantee of future results. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.

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