The Neyland Report
Earning - Thriving - Giving Back




One of the biggest questions on most investors’ minds right now has to do with how this year’s presidential election year could affect the stock market. The truth is no one can definitively predict market activity. The best anyone can do is study the history of the market in other election cycles, and consider the economic, political and global variables that might affect stock performance. Although past performance does not guarantee future results, historical trends are worth watching, if only for useful statistics. Investors like a sure thing, but the savviest among them know that the stock market is often rife with uncertainty.

Historically, election years have actually been good for the market. So, here is the good news: The stock market usually goes up during an election year. Even better news: surveyed market professionals last month, and the majority expects the S&P 500 to close higher than it is now, with the average forecast calling for a year-end target of 3,364. Every time a Republican president has sought reelection since 1942, the market has shown an average gain of 6.6 percent. However, history shows us is that the market does not necessarily respond one way or the other based on which political party is in power. On the plus side, history also shows that statistically when the stock market is up more than 20 percent in a year (it was 29.2 percent last year), the following year follows suit.

That all sounds very promising, but as mentioned earlier, there are a number of variables that can affect the 2020 market performance. Until last week, serious market watchers were feeling cautiously optimistic about further significant upticks in the market. However, the second week of the month saw an escalation of conflict between the U.S. and Iran, and potential resulting turmoil in the Mideast. That type of global upheaval often shakes investors up and the market responds negatively. Still, recovery often happens quickly. So as of this writing, it is a wait and see situation.

Additionally, certain economic indicators are cause for concern. Although unemployment is at a record low (3.5 percent as of this report), housing starts are strong and the overall economy appears healthy, the manufacturing sector is in bad shape. Some experts attribute that largely to the U.S./China trade war and tariffs imposed on both nations. On January 15, President Trump will reportedly sign Phase 1 of an agreement with China, but as of now no one knows for sure how effective it will be and if it signals a resurgence of manufacturing in the U.S.

Meanwhile, the new US-Mexico-Canada trade agreement (USMCA) appears to have bipartisan support and is likely to be approved by the full Senate, possibly by the time you read this. But economic experts are split on whether it will boost the U.S. economy. The overall perspective seems to be that it is better than no agreement at all, but whether it will show strong positive results for our country remains to be seen.

Related Articles