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How Will Stocks Vote?

With the presidential election coming up in November, many investors may view the outcome of the vote to be a momentous occasion that could affect the course of the stock market. Our view is that elections tend to have a brief positive impact on the market, although their long term effect tends to be fairly small.

The intuition behind the potentially positive, though brief effect is pretty simple – elections tend to foster optimism and happiness. However, the enthusiasm behind the electoral victory tends to wear off quickly, leaving little lasting impact on the market.

To test whether presidential elections tend to have an impact on the stock market, we studied the returns of the S&P 500 in years that coincided with presidential elections. The average return for those years was approximately 11%, which is not much different from the 11.8% average return for the S&P 500 in a typical year (Source: Bloomberg). Presidential election years simply do not seem to have much of an impact on the market’s performance.

So, if election years tend not to be different from other years from a return perspective, how about their volatility? Do presidential elections tend to affect stock price movements? To research this, we looked at all November monthly returns for the S&P 500 for presidential election years and looked at their standard deviation – the measure of how volatile those returns are. We found that the standard deviation of election month returns was 5.8%, not much different from the 5.5% standard deviation for all months (Source: Bloomberg).

Presidential elections have been important events in U.S. history. They have determined the course of our country’s political future. We find that they have not, however, done much to determine the values of public companies, even in such high stakes times as the Great Depression or World War II.

Important Disclosure Information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable. Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This presentation is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

S&P Index:

The S&P 500 is an index consisting of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe. Each constituent in an index is weighted by its market-capitalization, as determined by multiplying its price by the number of shares outstanding after float adjustment. The price return of an index is a measure of the cap-weighted price movement of each constituent within the index.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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