Do the US election results matter?

With the US focusing on the primary elections, we take a look at whether Democrats or Republicans have been best for the US stock market and does it matter?

Do the US election results matter?

While current attention in the UK is firmly focused on this month’s Budget and June’s EU referendum, across the pond US states will cast their votes for Republican and Democrat candidates in the primary elections known as ‘Super Tuesday’.

Common perception suggests that a Republican government and its pro-business policies should be positive for the US economy and ultimately stock prices. However, research for Fidelity International looking at the performance of the S&P 500 indicates a different story. Stock markets under Democrat presidents have on average outperformed those under a Republican presidents, with average returns of 10% over a Democratic president’s term since 1928, against 1.8% for a Republican president.*

Out of the 22 terms of office since 1928, four terms under a Republican president ended with negative returns, which compares to just one negative return under a Democratic president, Roosevelt’s second term in office.

While the US elections make for fascinating watching, Fidelity International’s portfolio managers believe that there are bigger issues for investors to focus on. Nick Peters, portfolio manager, Fidelity Solutions, points to the next Federal Reserve meeting in March and the outlook for further rate tightening as more important for stock market returns.

“Although important in the race to be a presidential candidate, Super Tuesday is unlikely to have a significant impact on US stocks,” he said. “Presidential elections remain several months away, and the bigger focus will be on the Federal Reserve meeting on 16 March.

“With markets having witnessed a volatile start to 2016, investors will be watching closely for the outlook over the Fed’s tightening timeline. While I think they are unlikely to hike in March, markets do seem to be underestimating the likelihood of rate rises in the US. Growth continues to be modestly positive, and with wages accelerating and inflation likely to pick up in the coming months, we may well see further rates rises in 2016.

“The real significance of Super Tuesday is that it tests candidates, with a barrage of states designed to stretch candidates and make sure that they can compete on the national stage, rather than focusing on a single state at a time. Given this, it will provide us with a firmer idea of who the presidential candidates will be in November, and what choices the US is likely to have to make.”

* Source: Fidelity, Bloomberg, Helaba Volkswirtschaft/Reasearch, FERI as at 31/12/2015

 

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