No matter what your personal feelings about those currently battling it out to be the 45th President of the United States of America, there’s no doubt that this campaign year will be remembered as one of the most unusual and unpredictable in history. Although the election won’t have a direct impact upon the UK, it’s fair to say that all eyes are likely to be on the US until November when we’ll find out just who will succeed Barack Obama. And, of course, any impact on US markets are very likely to be felt in some way across the globe.
With the rule book of what to expect seemingly thrown out of the window at this point, the question of what impact both the election and its potential outcomes could have on financial markets is perhaps more important than in any previous election year. Looking back at the last one hundred years of statistics, the Dow Jones industrial average returns around the same as an average year, around 10.1%. However, when an incumbent president isn’t running, the return drops to just 2.1%. It’s worth noting, however, that this is based on data from only eight open elections, which makes this percentage less certain.
Generally, the first year of a president’s four-year term yields the lowest average return, with their final year in office – an election year – being the second-lowest. The second year is usually slightly higher, and the third year the highest by a significant amount. According to this pattern, 2016 and 2017 will be comparatively weak, with a resurgence in 2018 and 2019.