Key Points from Canada’s 2024 Federal Budget and Strategies for our clients. Click Here.

Will the US Election Affect Stock Values?

Will the US Election Affect Stock Values?

October 18, 2020

Fama/French Total US Market Research Index 1929 to 2020 shows the increasing value of US stocks. The political party of the President has not been a significant influence on stock market performance.

Will the US election outcome affect the value of your US stocks?

This is a question that investors are asking these days as the November 3 election is fast approaching. Add in the unpredictability of President Trump and it is easy to understand those that might be nervous.

Based on the last 90 years of data we should predict the election outcome will not affect that country’s stock values.

Shareholders that invest in these companies made a prediction that they will be rewarded based on the success of companies they invest. They bought the companies not a political party.

The real question is: Will the next president potentially impact market returns? If so, then yes. But so are thousands of other variables.

The theory of investing is that all available market information is incorporated into the price of the stock. This was the finding of Professor Eugene Fama in his thesis during the 1960s and helped contribute to him winning a Nobel Prize for Economics.

If you look at a graph dating back to 1929, you see a relatively stable increase in stock values. Stable over intermediate and long-term periods with lots of short-term volatility which is very normal for stock markets. This information comes from the Fama/French Total US Market Research Index.

During that long period of time the Democrats and Republicans have traded the Presidency 10 times on what visually looks like a fairly even regular back and forth.

What can we observe from this information?

Political parties have not historically influenced the stock market. Over time, owning stocks has been very rewarding.

During the short-term there has been an endless amount of volatility.

That is how markets have worked.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.