Warning: Dangerous Predictions Ahead

Josh Mudse, CFP

Josh Mudse, CFP

It is inevitable. During Presidential election cycles the financial punditry cannot resist publishing articles and stories that suggest future market performance will somehow be dependent on what party wins the White House. With the Presidential Primary season drawing to a close, these articles are going to come out fast and furious as each of the major parties confirms their candidate for President. Is there any merit to these predictions? Does an examination of performance following past elections provide any discernable insight to this election? 

The simple answer is no. The complex answer is no. Every other answer is no, the results of the Presidential election are not predictive of future market returns. No matter how convincing a pundit may be with colorful charts and tables full of data, there is no direct connection between election results and stock market performance.  Even if we could find a study that shows any degree of correlation between election results and future market performance, correlation does not equal causation. If it was possible to show you a chart that proves a negative, it would be inserted [HERE].

I caution you to question and dismiss any article that tries to predict future market returns with any specific data that the author correlates to past performance. That certainly includes election results, but also includes any other issue that a prognosticator might use in order to draw a conclusion from a supposed correlation. Let me use two examples to illustrate why correlation does not equal causation.

Tyler Vigen published these charts about spurious correlations on his website tylervigen.com.