Close to 50% of Americans won’t be happy after this election…and it doesn’t matter.
The last three U.S. presidential elections have each been decided by less than 10 million votes. In a country of 327 million people (130 million voters), those are remarkably small numbers. In 2012, Barack Obama won re-election with only 51.06% of the vote. The latest poll numbers are telling us that a large percentage of the population will not be happy with the outcome.
Fortunately, it is not a prerequisite that an overwhelming majority of the country approve of the president in order for U.S. equities to go up. In fact, it’s just the opposite.
We looked at the Gallup poll approval ratings of U.S. presidents going back to the Kennedy administration. The approval ratings swung wildly while the Dow Jones Industrial Average generally climbed higher. In short, there was no correlation between the two. But what’s more interesting was that the markets actually performed best when the president’s approval rating was between 35% and 50%!
By way of example, President Obama’s approval ratings were in the 40s in 2013 and 2014, and the markets, as represented by the Dow Jones Industrial Average, climbed 30% and 10% respectively.
Obama’s approval ratings climbed back into the 50s in 2015 and markets have been generally flat ever since. Why would markets do better when most of the country does not approve of the president?
We’d posit that it’s because approval ratings generally fall as economic activity slows. At these times, the Federal Reserve is typically easing policy to reaccelerate economic activity and reflate asset prices. By the time the approval rating is above 50%, the economy is performing well and the Fed is tightening. This premise certainly played out from 2013-2016.
If that isn’t enough comfort for the voters of the losing candidate, then we ask investors to consider the market returns during the administrations of Ronald Reagan, the patron saint of the right, and Barack Obama, the flag bearer of the left. Politically, Reagan and Obama have very little in common. And yet, the price of the Dow Jones Industrial Average climbed 130% during the Reagan administration and has advanced 123% during the Obama administration.1 What did both administrations have in common?
- Historically cheap equity valuations at the beginning of their terms.
- A Federal Reserve that was successfully responding to a crisis―hyperinflation in Reagan’s case; deflationary forces in Obama’s.
- Favorable demographics―for Reagan, the Baby Boomers; for Obama, the Millennials.
Policy aside, a confluence of factors proved to be mighty tailwinds for both administrations. Neither Secretary Clinton nor Donald Trump will have Reagan’s or Obama’s good timing, although we suspect markets will continue to climb higher.
So if on November 8 your preferred candidate does not win, please take solace in the fact that historically the markets do not care.
Compelling Wealth Management Conversations is a program designed to help provide philosophical and historical context and perspective to keep investors “buckled in” and stay the course during uncertain times (and when have times not been uncertain), while providing a framework to help identify the best opportunities going forward.
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1 As of 10/14/16. Past performance does not guarantee future results.↩
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These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.