Regardless of your political views, the results borne from the upcoming election promise to have varying affects on the market, if history is any indication.

As the election draws closer South of the border….

we get a lot of questions about what a resulting Democratic or Republican win would look like for markets. While your politics may lean one way or the other, this post is not going to try to wage through the various policies that may affect markets in the short and long term.

Instead, let’s take a look at how markets react to certain scenarios following a red or blue victory. But one thing to remember is that, despite there being difference in the numbers, the volatility heading into an election typically subsides post election as the market accepts the outcome of the election and settles into a path based on expected policy. Numbers will bear that out below.

The chart below shows how the performance is distributed, on average, across an election year. Markets typically stall early, and over the course of year, improve, before falling immediately before elections and strengthening after a win. This chart does not reflect either a red or blue victory, simply the performance of election years in the stated timeframe.

In a year where markets have already eclipsed that 7.3% average, it is encouraging to see that, historically, we should be in line for further gains post-election.

Now….

moving on to looking strictly at the party winning the oval office, since 1951, the S&P 500 increased 11.5%/year on average when a Democrat was in-office. Comparatively, the same S&P 500 increased by 7.1%/year when a Republican was holding office. That is a significant difference and more than 50% increase from Republican to Democrat.

At first glance, a Harris victory looks like the better outlook for markets moving forward but those numbers don’t tell the entire story.

One could argue that the party controlling Congress ultimately wields more power than the party in the oval office. Since 1951, when the Democrats control the House and the Senate, the average return drops to 6.7%. However, the Republicans’ number does the opposite and increases to 11%/year. And not surprisingly, when the House and Senate are split, the return increases even further to 14.5%/year. Compromise tends to lead to the best outcomes. Why can’t we all just get along?!

Another chart shows, dating all the way back to 1923, how each scenario played out for market returns based on who is sitting President and the results in both the House and Senate. Despite the S&P 500 only being officially created in 1957, these results were tracked back to 1923 using the companies originally added to the S&P 500.

Our friends at PIMCO have gone a step further to outline specific sector trends they are forecasting based on a Trump or Harris victory. By no means a crystal ball, but rather a rough prediction on each party’s stance should they be victorious. Holding a diversified portfolio ensures that any negative volatility to one specific sector should be cushioned by the net benefits to the other sectors across the board. But interesting as a whole. 

So while none of us can accurate predict what is going to occur on November 5th, it is encouraging to see that if history repeats itself, stocks should continue to rise through the end of the year, spurred by a sense of finality to all the political drama and discourse but also a quick turnaround into the Santa Claus Rally, which more often than not, sees markets rise through December and into early January.

This information has been prepared by James Hogan, who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.