Lessons learned from a deep dive into market behaviour following the 2016 and 2020 elections.

Susan Dziubinski of Morningstar discusses market performances during presidential administrations with strategist Dan Lefkovitz, examining trends and future implications for investors.

In a recent interview with Morningstar, Susan Dziubinski and strategist Dan Lefkovitz dive into the stock and bond market performances during recent U.S. presidencies, offering insights into potential future trends as election season approaches.

Detailed Analysis:

  • Research Scope: Lefkovitz analyzed the Morningstar US Market Index and the US Core Bond Index across the administrations of the last four U.S. presidents, identifying trends and outlier events that shaped market performances.
  • Stock Performance: Under the administrations studied, the stock market saw its highest returns during the Trump presidency, followed by Obama. The market faced its toughest times under George W. Bush, influenced by significant geopolitical and economic events.
  • Bond Market Dynamics: Bonds fared best during the Bush administration, benefiting from lower risk amidst volatile global events, but have seen declines during the Biden administration due to rising interest rates and inflation concerns.
  • Election Year Volatility: Contrary to popular belief, election years like 2016 and 2020 did not necessarily increase market volatility. Major movements were often tied to global events outside of U.S. politics, such as Brexit in 2016.
  • Immediate Post-Election Reactions: Following Trump’s 2016 win, markets experienced a short-lived “Trump Bump,” particularly among small-cap value stocks, which surged on expectations of pro-growth policies, tax cuts, and deregulation. However, these sectors did not sustain their growth, with tech stocks eventually dominating the market gains.
  • International Market Response: Initial reactions in international markets to U.S. elections varied, with Russian markets gaining and Mexican markets suffering post-2016 due to Trump’s foreign policy stances.

Lefkovitz emphasizes that while immediate market reactions to presidential elections can be significant, they are often short-lived. Long-term market performance is more heavily influenced by broader economic factors and corporate earnings than by presidential politics. Investors are advised to maintain diversified portfolios and focus on fundamental financial analysis rather than trying to time the market based on electoral cycles.