Finance

Stock Market Roars Six Months After Biden Election, Trump Fans Who Pulled Investments Lick Wounds

The lesson is don't pull your money out of the stock market because you are pouting about an election result.

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There are people who know something about the stock market, and then there are people who think they know something about the stock market. In my experience, the former know enough about the stock market to realize they can’t possibly predict what it’s going to do in the long term (at least not beyond recognizing that it will just generally go up over a long enough period). The latter, well, sometimes they get lucky. I mean, there are only two possibilities, right? The stock market, or even an individual stock, is either going to go down or up over time. So, it can be really easy to convince yourself you’ve got some skills as an investor that are beyond the grasp of the algorithms and the Wall Street pros. Really though, it’s not that unusual to just get lucky on a few coin flips.

That being the case, I was a little amused last November by all the people I heard saying they were going to pull all their money out of their 401(k)s if Joe Biden won the election (I return to my hometown for deer hunting season every November, so I tend to encounter rural sentiments right around election time). I might have told a handful of these people the facts: that over the past century, stock market returns have been positive over the terms of more than 80 percent of presidents, and all three presidents who led the country to negative stock market returns during their terms were Republicans. But for the most part, why bother? They weren’t going to believe me over Fox News anyway.

Like most things people say in support of Donald Trump, that was probably just talk. But I really hope some of them did actually pull their money out of their 401(k)s, because the past six months have been a period of nearly unprecedented growth in the stock market. From Election Day, Tuesday, November 3, 2020, to approximately the end of April 2021, the S&P 500 went from about 3,369 to around 4,187. That’s more than a 24 percent return in less than six months. The Nasdaq Composite went from 11,161 on November 3 to 14,090 on April 27, gaining more than 26 percent in less than six months. Biden’s first 100 days in office have seen the strongest stock market returns of any presidential administration’s first 100 days for at least 75 years.

I figure if a long-term capital gain never materializes because you irrationally pulled your money out of the market to spite Democrats or whatever, you will just have that much less money to donate to Trump next time around. But forgetting about Democrats and Republicans for a minute, to the extent that remains possible in our society, all Americans should finally learn the lesson that who the president is usually doesn’t matter all that much to the stock market. Based on historical data, your odds of realizing good returns in the equities markets might be a little better under a Democratic president than under a Republican one. But your odds of seeing positive returns under a president of either party are quite good.

The stock market has been on fire since Biden was elected, and while he inherited a stock market that was already making a solid recovery following the initial COVID-19 plunge, he probably still deserves some credit. But the lesson to take away here isn’t just that Biden has been far from the disaster for the stock market that some Trump supporters feared. The lesson is don’t pull your money out of the stock market because you are pouting about an election result. Why rub monetary losses in the open wound of an unfavorable election result?

Neither you nor I know better than however it is already priced into the market how the next president will affect the stock market. I didn’t pull my money out of the stock market when Trump was elected. I obviously didn’t pull it out when Biden was elected either. I certainly won’t convert my investments to cash after the election of whomever the next president is. Neither should you.

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Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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