Stocktake: Election outcome makes ‘shockingly little difference’ for stocks
Market impact of conservative versus liberal election outcomes ‘surprisingly similar’
Traders work at the New York Stock Exchange. Photograph: Johannes Eisele/AFP/Getty Images
Stocks have been all over the place in recent weeks as investors became gripped by election fever, but as veteran money manager and Research Affiliates founder Rob Arnott pointed out last week, the outcome makes “shockingly little difference” when it comes to long-term returns
Arnott referred to a 2017 study by the firm which found that, globally, the relative stock market impact of conservative versus liberal election outcomes are “surprisingly similar”. US stock returns have been better under Democrat administrations over the last century but that differential is largely explained by two years, 1932 and 2008, says Arnott.
Outside of the US, there is no real difference in the results. For example, returns were higher in France and Canada when the left was in power, but the differences were not statistically significant. By contrast, average returns were higher in Australia, Germany and the UK when the right was in power, but again the differences are not statistically significant.
As an example of how market outcomes can be counterintuitive, the Research Affiliates study notes that the best time to invest in French stocks in the last 75 years was during François Mitterand’s term.
“Despite punitive taxation, nationalising industries and sluggish economic growth, stocks rose 400 per cent”, it notes. “What’s good for the economy isn’t necessarily good for the share prices of existing enterprises.”