With a Democratic US President now in office and a Democratic Congressional majority, investors may be tempted to predict where US equity markets go in the coming months based on which political party is in power. Our suggests that investors may want to use a more nuanced lens when constructing go-forward investment strategy.
We examined three-month US equity market moves following the past five US presidential elections as reflected in performance of the US large-cap Russell 1000® Index and the US small-cap Russell 2000® Index. Findings suggest that, whether US political advantage runs red or blue, general market backdrop determines whether markets run green or red after elections. For example, the US equity markets declined after clean party sweeps for the Bush 43-led Republicans and the Obama-led Democrats in 2000 and 2008, respectively, stemming in large part from the bursting of the tech bubble and the Global Financial Crisis driving markets at the time. And, by the same token, the US equity markets rose in 2004 and 2012 amid Republican- and Democratic-led election outcomes, owing to strong underlying economic pictures at the time.
Mark Barnes, head of Americas investment research, FTSE Russell:
“While it is important to understand what is going on in Washington, D.C., and how it may impact your investment portfolio, history indicates that no single political party has a monopoly on market performance. And in times of great change, investors can be well served by looking at historical market data and analysis as a source of insight and perspective.”
For more information on the Russell US indexes, go to the FTSE Russell website.
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