July 6, 2020
Ryan Detrick, CMT, Senior Market Strategist, LPL Financial
Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial
2020 is an election year, and as we get closer to November, we expect this to replace COVID-19 and the recession at the top of investors’ minds. The makeup of Congress may influence stock market performance, and how stocks and the economy perform prior to the election may forecast who will win.
THE MAKEUP OF CONGRESS IS VERY IMPORTANT
Although all election years feel different, 2020 no doubt may be one of the most unique election years ever. We have a pandemic, a deep recession, extremely heightened partisanship, a mail-in ballot controversy, an unpredictable president, and the oldest presidential candidate ever.
Amazingly, 1940 was the last time the S&P 500 Index was lower during an election year with an incumbent in the White House. Historically, when a president has been up for reelection, it has tended to boost stocks. Stocks were down big in 2008—but President George W. Bush had finished his two terms. It isn’t about Republican or Democrat—it’s about incumbents trying to boost the economy and stock prices by the time voters go to the polls. Some good news on the economy in the coming months or progress toward a vaccine
could potentially get the S&P 500 back to positive territory for the year, after being down 30% year to date in March, and it’s possible that may help President Donald Trump’s reelection chances.
We’re often asked if stocks perform better under a Republican or Democratic president. We’d take a different view and point out that stocks have tended to do their best when we have a split Congress [Figure 1]. Markets tend to like checks and balances to make sure one party doesn’t have too much sway.