The U.S. presidential election is rapidly approaching and certainly much is at stake. As expected, both political parties are making a final push to sway undecided voters, while voters on both sides are becoming more entrenched in their views. Moreover, the nation appears to be more polarized today than in prior years. As a result, many are anxious about what will happen if the candidate he or she votes for does not win the election. The nation may not even know the final results on election night, adding even more fuel to the uncertainty fire.
All of this uncertainty and fear can lead to investment opportunities for those who are alert to them. My mantra in prior posts has been to stay the course — hopefully, the takeaway from this week’s chart will leave you feeling more confident about what the future may hold for markets, regardless of which party wins the presidency.
A recent article in The Wall Street Journal highlighted historical returns following presidential elections and the results may come as a surprise. The headline, “Stocks Typically Climb, Regardless of Who’s in the White House,” says it all and may allay some investors’ fears. Moreover, the article goes on to show that from 1929 through 2019, when one party swept the presidency and both chambers of Congress, the S&P 500 Index rose 7.45% on average. When the government was split, the S&P 500 Index still moved up a similar 7.26% on average. In this week’s chart, we dug a little deeper and looked at returns for the U.S. Corporate High Yield Bond (USHY) market in the years following a presidential election — and the results also may not be what one would expect.
As depicted in this week’s chart, in the one-year period following an election year, the high yield market tends to perform very well. From 1984 through 2019, for the calendar year following an election year, USHY returned an impressive 15.28% on average. Following the election of a Republican president, the results averaged a solid 8.4%. When a Democratic president was elected, the following calendar year produced an even stronger 23.88% return on average — which was skewed more than 11% higher by the 2009 rebound following the global financial crisis (GFC).
There are certainly idiosyncratic events not related to the election outcomes (e.g., the 2009 emergence from the GFC, which led USHY to return 58% that year) that make it difficult to determine causation versus correlation. However, the average return of the calendar year following an election at 15.28% was stronger than the average annual return of 9.78% for USHY from 1984 through 2019. Again, even if we removed the amazing 2009 return, the calendar years following an election year still outperformed the average USHY return by over 150 basis points.
Key Takeaway
I realize that when it comes to the presidential election, a lot more is at stake than just investment returns. However, I know that some investors will want to make knee-jerk or emotional reactions once a winner is decided. Hopefully, this week’s chart can help dispel some fears about what may or may not happen to the market as a result of who our next president is. Historically, the years following an election have proven to be strong for USHY investors who can stomach the uncertainty. I know I’ve said it before, but it’s worth repeating — having an investment plan and staying the course are keys to investing success in the long run. If your risk appetite and investment horizon allow it, continue to put your money to work next year and USHY may be a solid performer for your portfolio.
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
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