You are using an outdated browser. Please upgrade your browser to improve your experience. By Anne Kates Smith , Senior Editor Originally Published February This story was originally published in February Its guidance may still prove helpful to investors as they digest the results of the presidential election.

Every four years, politics and finance converge as Americans elect a president and investors try to figure out what the outcome means for their portfolios. A look back at history shows that presidential election cycles indeed correlate with stock market returns—although not in the same, clockwork way that, say, the moon pulls on tides.

As for the outcome of elections? The impact might surprise you.

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Below, a few things investors should consider in election years. The stock market has, for the most part, ebbed and flowed with the four-year election cycle for the past years.

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Since , the Dow Jones industrial average has gained an average of A notable recent exception to decent election-year returns: Returns are based on price only and exclude dividends. But no one needs to tell you that the current cycle is anything but average.

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Conventional wisdom might suggest that Republicans, who are supposedly more business-friendly than the Democrats, would be more beneficial for your stock holdings. But normal variations in annual stock market returns dwarf that difference, says Russ Koesterich, chief investment strategist at BlackRock.

He concludes that a focus on which party wins the White House is unwarranted—at least from an investing standpoint. Divided versus united government. Another urban legend is that markets do better when government is divided, says Koesterich. With neither party in control, government is somewhat neutered, leaving markets free to flourish. InvesTech has looked at stock returns going back to under three separate scenarios. A political crystal ball. Election results may not be so great at predicting stock market returns, but the converse is not the case.

It turns out that the stock market has an uncanny ability to predict who will call the White House home for the next four years. If the stock market is up in the three months leading up to the election, put your money on the incumbent party.

Losses over those three months tend to usher in a new party.

The statistics are compelling. In the 22 president elections since , 14 were preceded by gains in the three months prior. In 12 of those 14 instances, the incumbent or the incumbent party won the White House.

In seven of eight elections preceded by three months of stock market losses, incumbents were sent packing. Exceptions to this correlation occurred in , and Toggle navigation Menu Subscribers Log In.

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