For Long-Term Investors, Small Things Like Presidential Elections Don’t Matter

There is heartbreak almost everywhere you look, our columnist says, but the stock market usually rises anyway.

By Jeff Sommer

In a year of serial crises, solace for many people has come from an unlikely source: the stock market.

Despite periodic jitters and a horrendous downturn earlier in the year, the stock market has been a surprisingly sturdy refuge. Though there is heartbreak almost everywhere else you look, most of the time stocks rise anyway.

Through Friday, the S&P 500, a benchmark for the shares of big American companies, was up almost 8 percent this year. And this stock market prosperity in a time of general desperation isn’t an outlier. With important exceptions, the stock market has generated rich returns for decades, regardless of the outcome of portentous events, including presidential elections.

Since 1929 through 2019, the S&P 500 and its predecessor indexes generated annualized returns of 10.3 percent, according to data supplied by Dimensional Fund Advisors, an asset management firm.

There were terrible stretches in world history during that long period, and some calamitous stock returns. The volatility of the stock market is a key reason for holding high-quality bonds: Bonds can buffer the gut-wrenching shifts in stocks.

But it is hard to pin either the market’s losses or gains explicitly on the policies or management of presidential administrations, or on voter expectations.

Presidents are powerful, but they don’t control the market. Was Barack Obama responsible for the fabulous 16 percent annualized market returns during his eight years in office? Was Donald Trump responsible for the 14.5 percent annualized returns for his presidency through January (according to Bloomberg data) — or for the 33 percent downturn in February and March, or for the subsequent bull market run? You can argue this any way you like. I think the most intelligent answer is: yes, to some extent, but certainly not entirely. With all the factors affecting the staggeringly complex markets and the overall economy, presidencies don’t matter as much as it may seem in campaign season.

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