Investors like election years, no matter which party wins

Whether you favor the Democrat or the Republican, you have to like the stock market when the U.S. elects its president.

For investors seeking a quick buck, a bet on the Republican pays off because the election-year gains tend to be greater when the party’s candidate prevails in November. The buy-and-hold folks do better when the Democrat wins because of larger returns and smaller price fluctuations during the following three years. At least that’s been the pattern throughout the past half century, according to data compiled by Bloomberg.

The market for shares has no ideology and it’s impossible to be sure why it’s done well in recent election years. So here’s a theory: It’s an expression of confidence in the American political system, with investors trusting voters enough every four years to act on their expectation of a brighter future no matter who wins.

How good are presidential elections for stocks? During the 13 presidential election years since 1964, when Democratic President Lyndon B. Johnson was elected in a landslide, the Standard & Poor’s 500 Index gained 11 times, or the equivalent of 5.5 winning years for each losing year.

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Shorter-term investors did better when Republicans won, while Democratic victories rewarded those with more patience. The average annual return was 8.8 percent for the S&P 500 in Republican years compared to the 5.3 percent in Democratic ones, according to Bloomberg data.

But over the next three years, the S&P rose faster with a Democrat in the White House, returning average yearly gains of 11.7 percent compared to 5.1 percent for Republican presidents. And while the market shows a bit more stability during the years when Republicans win elections, Democratic presidents preside over markets with slightly less tumult in the years after they take office.

So what should investors make of 2016 with Hillary Clinton and Donald Trump?

If stock markets past are prologue, whoever wins will have inspired the most confidence that the U.S. is strengthening. Trump in his acceptance speech on July 21 described a nation besieged by violent crime and ruinous global trade. A week later, Clinton spoke against a backdrop of falling unemployment, rising home prices and a growing economy to predict that happier days will be here again. •

Matthew A. Winkler is a Bloomberg View columnist and editor-in-chief emeritus of Bloomberg News.

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