November 2016 Whitepapers


Election Day in the United States is, at last, here tomorrow. Similar to any other major event, investors will be looking to what effect the presidential election will have on the stock market for the rest of the year and beyond. One way we can prepare for this movement is to analyze the historical price performance of the S&P 500 and the Dow Jones Industrial Average (DJIA) during past election cycles. Here we’ll examine:

How does the stock market perform in the final two months of presidential election years?

What effect does the elected political party have on stock market performance in the years following the election?

Which sectors are the top performers during election years and post-election?


Below is a very encouraging chart as we close out 2016. With a President elect decided we have a very good chance of moving higher through year end. Sure in 2008 we were in the middle of an economic disaster and many people forget the protracted legal battle and “hanging chads” that kept the 2000 Presidential Race on hold until December 12, 2000 when a 5-4 decision by the Supreme Court ultimately awarded Florida’s electoral votes to George Bush providing him with the path to victory. But in most “normalized election years” the markets move higher after a President is chosen.







S&P 500 and Dow Jones Industrial Average Underperform during Election Years

During presidential election years going back to 1928, the S&P 500 index has been in the positive 73% of the time (16 out of 22 years). The average price gain of the S&P 500 during election years was 7%, which trailed the 7.4% gain for the index during all years. When a Democrat was elected as President of the United States, the S&P 500 was up for the year 58% of the time (seven out of 12 years) and saw an average price increase of 3.3%. When a Republican was elected as President of the United States, the index was up for the year 90% of the time (nine out of 10 years) and posted an average price increase of 11.4%.

When performing this same analysis for the Dow Jones Industrial Average, we see a similar story. That is, the index tends to underperform during presidential election years when a Democrat is elected (compared to when a Republican is elected) and also underperforms during election years in general (compared to all years). This is shown in the two charts below.







What Does History Indicate about the Final Two Months of Election Years?

As of close on November 1, 2016 the S&P 500 is up 3.3% year-to-date. Looking at the final two months of presidential election years going back to 1928, the S&P 500 index gained in value 64% of the time (14 out of 22 years). The average price increase was 1.9%, which trailed the 2.1% average increase in the final two months of all years.

When a Democrat was elected as president, the S&P 500 posted an average price gain of 0.6% (during the final two months of election years), which was well-below the 3.6% average gain when a Republican was elected. When performing this same analysis for the Dow Jones Industrial Average, the average price increase in the final two months of election years actually exceeded the average gain in the final two months of all years by 0.3 percentage points. The effect that the elected political party had on the Dow’s price movement was consistent with that of the S&P 500 index.







Post-Election Years: Third Year after the Election is a Charm

Looking at the first year after the presidential election (going back to 1928), the S&P 500 index has increased in value 55% of the time (12 out of 22 years), with the average price gain amounting to 5.1%. When a Democrat was elected president, the S&P 500 was in the positive during the first post-election year 75% of the time (nine out of 12 years), with the average price increase equaling 11.7%.

When a Republican was elected president, the index was in the positive only 30% of the time (three out of 10 years), with the average price change amounting to -2.8%. Keep in mind that this represents a stark contrast to the price change for the S&P 500 during election years, when a Democrat was elected versus a Republican. In election years, when a Democrat was elected as President of the United States, the S&P 500 underperformed (compared to when a Republican was elected) on average by 8.1 percentage points.

As shown in the chart below, the third post-election year experienced the largest price gain for the S&P 500 on average. During the third year after the presidential election, the S&P 500 increased 12.8% on average, which exceeded the 7.4% annual gain for all years (going back to 1928). No other post-election year logged an average percentage increase that beat the 7.4% watermark.







S&P 500 Favors Democrat to New Democrat President Transition over Democrat to Republican

From a political continuity perspective, a Hillary Clinton win would be better for the market in the first year after the election, based on history. On average, the S&P 500 index increased in value by 9.8% in the first postelection year when the political party of the president transitioned from a Democrat to a new Democrat. Keep in mind, though, that this has only occurred twice since 1928.

Contrastingly, the S&P 500 decreased in value by 10.2% on average in the first post-election year when the political party of the president shifted from a Democrat to a Republican. This has occurred four times since 1928. It is interesting to note that in the second and third years after the election, the Democrat to new Democrat transition underperformed the Democrat to Republican shift.







Consumer Discretionary has been Best Performing Sector in Post-Election Year

Looking at post-election years going back to 1992 (when all S&P 500 sector data is available), the S&P 500 index still performed best in the third year following the presidential election. At the sector level, the Financials group saw the largest price gain during election years, posting an 8.8% average jump. The Telecom, Information Technology, and Materials sectors were the only groups to log an average price decline during election years.

In the first post-election year, all S&P 500 sectors saw an average price increase, with the Consumer Discretionary group leading the way (+19.9%). The Information Technology sector led all groups in terms of price performance for the second and third years after Presidential elections. Once again, all S&P 500 sectors posted a price gain on average during these years.







CONCLUSION


Every election cycle is different and this one has been especially interesting, maybe even taxing and overwhelming. Social media has played its largest role yet, WikiLeaks was never a factor before, hacking fears on election day are a problem many of us are facing for the first time. Many experts feel the country will grind to a halt tomorrow as we turn to our TV sets and watch the outcome unfold. By most accounts it’s a Dead Heat.

In addition to the headwind of electing a new President we have a supreme court with only 8 members (4-4 by the way), a federal reserve intent on raising interest rates, a country seeking to grow GDP in the face of high corporate taxes, challenging Affordable HealthCare mandates and stagnate wage growth.

A new President and a fresh mandate may just be want this country and stock market needs to move forward and higher. After doing this for nearly 25 years the one thing the market hates is uncertainly and the unknown. Come tomorrow evening one of the major unknowns will be removed and we can begin the process of managing for more of the knowns than the unknowns.

Disclosure


WT Wealth Management is a manager of Separately Managed Accounts (SMA). Past performance is no indication of future performance. With SMA's, performance can vary widely from investor to investor as each portfolio is individually constructed and allocation weightings are determined based on economic and market conditions the day the funds are invested. In a SMA you own individual ETFs and as managers we have the freedom and flexibility to tailor the portfolio to address your personal risk tolerance and investment objectives – thus making your account "separate" and distinct from all others we potentially managed.

An investment in the strategy is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carry certain specific risks and part or all of your account value can be lost.

In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector ETF's and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs investments may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nation's experience. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds, bond funds and bond ETFs will decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax.

Diversification and asset allocation may not protect against market risk or a loss in your investment.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

WT Wealth Management is a registered investment adviser in Arizona, California, Nevada, New York and Washington with offices in Scottsdale, AZ Jackson, WY and Napa Valley, CA. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Managements web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management web site on the Internet should not be construed by any consumer and/or prospective client as WT Wealth Management solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of WT Wealth Management, please contact the state securities regulators for those states in which WT Wealth Management maintains a registration filing. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's business operations, services, and fees is available at the SEC's investment adviser public information website – www.adviserinfo.sec.gov or from WT Wealth Management upon written request. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

WARRANTIES & DISCLAIMERS

There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

View Disclosure
WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

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