Presidential Terms and their long-term impact on the market

Growth of $100

Are you one of the many investors who are awaiting the results of the US election to make an investment decision?  Well, don’t waste another minute of your life worrying about it.  I have a bold prediction…regardless of who wins, there will be a market drawdown of at least 15% during their term as president.  For reference, a drawdown is the peak to trough rate of return, during a specified period, before it recovers back to its peak.

Why am I so sure?  As I’ve talked about in the past, the global market is volatile.  On any given day, the market can be up, or down, depending on real-time information that day.  In every past president’s term, going all the way back to Herbert Hoover in 1929, there has been at least a 17% drawdown.

The worst drawdown occurred in Hoover’s term.  The US market was down 86% over a specific period.  It makes sense as Hoover’s term started right before the Great Stock Market Crash of 1929 (October).  The least drawdown occurred in Jimmy Carter’s term.  See attached chart.

Chart

Democrat or Republican President, the market will do what it has always done – provide growth over the long term.  When you break it down to brass tacks, what is the market?  It is a collection of all publicly traded companies.  When you invest in the market, you are becoming a shareholder in these companies.  Companies are in the business of generating profits for their shareholders.  The following chart illustrates the market in action, regardless of the party in the White House.

Growth of $ 100

I am certainly not advocating that short-term investors ignore the current market environment.  However, given historical data on presidential terms and subsequent market performance, I am simply suggesting that investors not base their long-term investment decisions on election results.

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