With three weeks until Election Day, investors are asking themselves who is the best candidate and will Hillary Clinton or Donald Trump be better for the stock market.
But based on historical evidence, Americans tend to overstate the influence any president or political party has on the stock market. There is a general consensus that Republicans tend to be more business-friendly, but statistics show no evidence that this leads to higher stock prices.
Since World War II, the average annual gain for the S&P 500 under a Democratic president was 12 percent (not including dividends). Under Republican presidents, the average was 6.3 percent. If you break down the returns based upon which party controlled Congress, a Republican majority has coincided with better performance. All the numbers might be misleading when you consider that many new government policies don't filter through to the economy for years, and may not impact market returns until a different party is in power. In short, the evidence is inconclusive.
What we know is that a president from a party different from the White House incumbent will likely lead to more changes. This year, Trump's status as a Washington outsider adds an extra layer of unpredictability.
For the stock market, "predictable" usually means "less volatile." Clinton's election is considered the most likely result and is unlikely to move markets significantly. Trump represents the unexpected outcome and could be met with higher volatility and even panic, at least in the short term.
Political power increases when one political party holds both the presidency and congressional control. That seems unlikely to happen, since Republicans will likely retain a majority in the House of Representatives and provide a natural check and balance against a Clinton presidency. Even if Trump wins, his polarizing nature would not attract the undivided support of traditional Republicans.
Despite what politicians say, your portfolio just doesn't care that much. The stock market has prospered, and equity investors have consistently benefited, regardless of who has been president. That's because markets are driven more by macroeconomic trends and, lately, central bank policies than by who is in the Oval Office.
Dozens of studies involving markets and politics have led to similar conclusions: Don't let how you feel about politics overrule how you think about investing.
Ben Marks is the chief investment officer at Marks Group Wealth Management, an independent registered investment advisor (RIA) based in Minnetonka.