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Historically, Stocks Perform Better When Sitting President Is Reelected

October 23, 2020 1:15 pm
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Historically, Stocks Perform Better When Sitting President Is Reelected

Former Vice President Joe Biden has a sizable lead over President Donald Trump in the polls following the final presidential debate on Thursday night.

The SPDR S&P 500 ETF Trust (NYSE:SPY) is up 4.4% in the past month reading into the final stretch before Election Day. However, from a historical perspective, reelection of a sitting president has been much better news for investors than a victory for the challenger.

The Numbers: Since 1950, the S&P 500 has gained an average of 9.6% in the year after a president is reelected, according to LPL Research. That return is more than twice the 4.8% average gain following a transition in the White House.

Related Link: Cannabis Stocks, Cruise Lines Have A Lot To Gain From A Biden Victory

“Think about it—usually when a president wins reelection, it means the economy is going pretty strong, so stocks tend to do well,” LPL Financial Chief Market Strategist Ryan Detrick said. “The flipside is that new leadership in Washington can bring with it potential change that could rock the boat and hold stocks back.”

The good news for investors is that the S&P 500 has performed extremely well in the years following the last three U.S. election years regardless of who wins.

The S&P gained 23.5% in Barack Obama’s first year in office in 2008 and another 29.6% during the first year following his 2012 reelection. Stocks also performed well during Trump’s first year in office, gaining 19.4%.

Benzinga’s Take: As Detrick suggested, strong performance by the stock market in the year following a reelection is likely more correlation than causation. If the economy is already performing well ahead of the election, the president is likely to be reelected and the stock market is likely to continue to perform well in the following year.

Barack Obama with former Presidents Bush (41), Carter and Clinton and current President Bush in the Dining Room of the West Wing at the White House on Jan. 7, 2009. (Photo by Pete Souza)

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