Are You Having Election Market Jitters?

Nancy L. Skeans, CPA, CFP©
Schneider Downs Wealth Management Advisors, LP
Over the past several weeks, we have been receiving questions from clients and colleagues about the potential impact of the upcoming November election on future U.S. equity returns. Of course, this upcoming election has created tremendous market buzz. It is not just any election; it is a presidential election in the middle of a pandemic and a recession. There is nothing like crisis to heat up the contest.
Are you concerned about the upcoming election results impacting U.S. equity markets?
Yes, I am concerned that there will be an impact to U.S. equities.
No, I am not concerned.
The equity market concern most prevalent in the media and in our client conversations is whether a Trump loss (a Biden win) will result in an equity market correction or downturn. Why might U.S. equity prices fall if the White House changes hands? 

Let us rephrase the first question: Does the presidential election really matter to the U.S. equity market return over the long run? It may seem hard to believe, but historical capital market data tells us no. A Vanguard analysis dating back over the last 160 years illustrates average investment returns in election and non-election years, respectively, had a negligible difference, with no material change in underlying volatility either.
Vanguard found that the average return of a 60% stock/40% bond portfolio was 8.9% during an election year and 8.1% in a non-election year. In addition, the annualized volatility of the S&P 500 from 1964 through 2019, 100 days before and 100 days after a presidential election, was 13.8%, lower than the 15.7% annualized volatility for the full period. 

Also, keep in mind that Vanguard looked at a balanced portfolio of equity and bonds. We would expect a balanced portfolio to be less volatile over time given the exposure to high-quality bonds, which have historically served as a ballast during past rough equity market periods.

J.P. Morgan Asset Management also has crunched a few numbers regarding election years and the return of the S&P 500 (100% Large U.S. equity). They concluded that from 1932 – 2019, the average S&P 500 return was lower in election years (+5.8%) and higher in non-election years (+9.6%). Volatility has also been slightly higher, averaging 15.8% in election years versus 15.2% in non-election years. JPM highlights that there have been two election years, 2000 and 2008, that have varied significantly from long-term averages noted in the chart below.
We clearly remember the years 2000 and 2008, and frankly not because of the presidential elections. Both years marked the beginning of a financial crisis and significant losses for equities: the tech bubble burst and the mortgage/debt crisis (also known as the Great Financial Crisis). So, in 2000 and 2008, did the presidential election cause the equity markets to be volatile or was it really the economic environment we found ourselves in during those past Novembers?

Enough of a history lesson - let us explore the second question: What factors are causing investors’ concerns for a U.S. equity market downturn if Joe Biden succeeds in his election bid? 

Market pundits are concerned that a possible Biden win is already causing the market’s tepid 2020 returns. Historical capital market data tells us that if the incumbent President is not expected to win re-election, market returns in an election year are muted or trend downward. As of September 30, 2020, the S&P 500 is up approximately 5.6% year-to-date, while small and mid-cap stocks, as measured by their respective Russell indices, are solidly negative for the year, off approximately -2.8% and -8.8%, respectively. Developed international equities, as measured by the MSCI EAFE, are off approximately -7%.

When examining 2020 year-to-date S&P 500 returns by market sector as of 09/30/2020, are these returns due to the upcoming election or due to the impact of COVID-19 and the recession that we currently find ourselves in? We would argue that the chart below does not have much to do with the election. Instead, the low to negative returns that many sectors are experiencing have everything to do with their expected future earnings. 
In our view, the top concerns causing investor concern over a potential Joe Biden victory are:

  1. higher government regulation (more cost to run a business),
  2. higher corporate and individual income taxes (less money earned by investors and less money for individuals and corporations to spend), and
  3. more government programs (higher government debt) leading to slower economic growth (equals less growth opportunities for businesses and individuals).

More corporate regulation, higher corporate taxes, and lower or slower economic growth all impact a corporation’s ability to grow corporate earnings. As we have discussed in the past, ultimately the price that investors are willing to pay for a stock is determined by the expectation of that company’s future earnings. If earnings expectations fall, stock prices will as well. Please refer back to the S&P 500 returns by sector above. Earnings and future growth prospects have historically been key drivers of publicly-traded company stock performance.

We want to close with a few points of comfort to those who may be suffering from stock market jitters due to the upcoming election.

  1. As investors, market volatility is something that we face every year and more so in years when the economy is distressed, especially facing the pain of a recession. This is where we find ourselves today.
  2. Vanguard’s article reminds us that a stock/bond asset allocation can mute volatility. Even with interest rates at very low levels going into the close of 2020, the Barclays Aggregate U.S. Bond Index is up approximately 7%, beating the S&P 500 year-to-date.
  3. While the election of the next President is very important to our country, the President, in order to implement tax legislation or any legislation, needs the support of Congress. If Biden were to win, without a sweep of the House and Senate, he will most likely govern by Executive Order. This is the predicament that President Trump currently faces and where President Obama spent much of his tenure.
  4. Market returns (equity and bond) are directly related to access to credit. As the saying goes: “Don’t fight the Fed.” The Federal Reserve is laser focused on providing liquidity to capital markets and keeping interest rates very low.
  5. Lastly, as past economic crises have shown us, the way forward is found in solving the near-term crisis to pave the way for longer-term growth.

The team at SDWMA wishes all of you a healthy and safe fall season. Please do not hesitate to reach out to your advisor if you have any questions or concerns about your asset allocation as we move into and through this coming election.   

According to Money Confident Kids, only 23% of kids surveyed stated that their parents talk to them about money. Financial literacy is an important, and often untaught, lesson.
During this season, many of you have become "teachers" of your children or grandchildren. Here are some helpful resources for teaching the children in your life good financial management.
A step by step financial education program that gives kids the knowledge they need to help build money confidence.

Play the 'Jelly Bean Game' and teach your kids and teens how to manage a budget.

Here are 10 fun activities for money smart kids.

The Four Money Bears teach kids the four basic functions of money. Spender Bear, Saver Bear, Investor Bear, and Giver Bear can each do good and bad things with their money. When they work together, they learn to build a budget and teach each other how to better manage their money. The Four Money Bears and their friends share their stories and give kids fun financial tips. They come together in their forest home to teach everyone money management skills. These skills serve as building blocks for strong financial literacy and expose young children to healthy financial habits. Parents can also help kids create their own budget for every month of the year at the end of the story!

Read more about the best way to teach kids in different age groups about money, including helpful resource links and printables.
Have You Missed Any of Our Recent Communications?
Have you found the content in our Financial Boot Camp series helpful?

SDWMA's Jason Staley shares insight on the impact of COVID-19 on market volatility, and why we think that volatility is here to stay.


SDWMA's Alex Papson provides important data detailing the effects of COVID-19 on the economy.

From Our Kitchen to Yours
Courtesy of Alissa Garcia
Investment Relationship Manager/Communications Manager

No Bean Turkey and
Sweet Potato Chili
20 oz Lean Ground Turkey
Salt (to taste)
1/2 cup Onion, Chopped
3 cloves Garlic, Crushed
10 oz can Rotel Mild Tomatoes with Green Chiles
8 oz can Tomato Sauce
3/4 cup Water
1/2 tsp Cumin
1/4 tsp Chili Powder
1/4 tsp Paprika
1 Bay Leaf
2 Small or 1 Large Sweet Potato, Peeled and Diced into 1/2-Inch Cubes
Fresh Cilantro for Garnish

In a large skillet, brown turkey over medium-high heat, breaking it up as it cooks into smaller pieces and season with salt. When meat is browned and cooked through add onion and garlic; cook 3 minutes over medium heat.

Add the can of Rotel tomatoes, sweet potato, tomato sauce, water, cumin, chili powder, paprika, salt and bay leaf. Cover and simmer over medium-low heat until potatoes are soft and cooked through, about 25 minutes stirring occasionally.

Add 1/4 cup more water if needed. Remove bay leaf and serve.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
Schneider Downs Wealth Management Advisors, LP
1 PPG Place, Suite 1700
Pittsburgh, PA 15222