The S&P 500 Index has correctly predicted 19 of the past 22 presidential elections and every election since 1985...Amid unprecedented political polarization, lackluster growth, persistently low interest rates, and mounting geopolitical tensions, investors are grappling with allocation decisions as what may be the most contentious presidential election in their lifetime approaches.
Read on for an excerpt of Lord Abbett's engaging commentary, or view the entire document here.
Since 1928, movement in the S&P 500 Index has correctly predicted 19 of the past 22 presidential elections and every election since 1985, according to Strategas Research Partners (download commentary to view chart). “If stocks are higher in the three-month period before the election, the incumbent party wins, and vice versa,” said Strategas partner Dan Clifton. “Intuitively, this makes sense. Alower stock market reflects a down-trending economy, which is not good for the incumbent party [witness 1992, 2000, and 2008]. Moreover, the uncertainty associated with a new president could weigh on financial markets in the short run.”
Clinton is advocating more aid for states and cities, which could be a tailwind for municipal bonds. She wants to push the country away from fossil fuels and plow more money into renewable energy, and she would no doubt maintain her focus on drug pricing in the pharmaceutical sector. If Clinton wins the White House, she will get to select the next Supreme Court justice, which finally could resolve immigration matters of vital concern to workers at agriculture companies. Money center banks likely will remain under pressure, given costly regulation and litigation in recent years, but financial companies inured to the healthcare and insurance policies of Democrats could benefit.
A Republican win has the potential to trigger a rally in pharmaceutical and biotech companies, which have the most at stake in this election. It could help for-profit education companies, border/cargo inspection services, and prisons. However, in the event of mass deportations of immigrants, certain housing and food producers could take a hit. But if the threat of a $15 minimum wage falls flat, some restaurant chains could benefit. As for financial services, some analysts doubt the massive Dodd-Frank financial reform legislation will be repealed, but they do expect some changes on the margin, which could help regional banks, stock exchanges, asset managers, student lenders, credit cards, and insurers.
For a look at how sectors have performed after past elections, and additional analysis by Lord Abbett, download the complete commentary. Or review WrapManagers at-a-glance statistics of how past elections affected market performance.