Wells Fargo sees U.S. election year hurting equities

Wells Fargo sees U.S. election year hurting equities
Investors should brace for a tough year in U.S. equities as a presidential race dominated by political outsiders will only compound market anxiety over slumping oil and a slowing global economy, according to Wells Fargo & Co.
FEB 16, 2016
Investors should brace for a tough year in U.S. equities as a presidential race dominated by political outsiders will only compound market anxiety over slumping oil and a slowing global economy, according to Wells Fargo & Co. The S&P 500 index is down 9.4% this year as of Wednesday's close, compared with an average annual gain of 6.54% during the fourth year of a presidential term since 1933, according to Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute, the registered investment advisory arm of the bank's wealth and investment management division. Republican candidate Donald Trump and Democratic hopeful Bernie Sanders won their respective primaries Tuesday in New Hampshire, and their victories are seen as a vote of no confidence in the nation's economic and political status quo. Their candidacies only serve to muddle the outlook for stocks at time when the market is seeking clarity. ”If a candidate with radically different ideas came into office, it would be an environment where the market would have difficult time assessing what impact that would have on the economy,” Ms. McMillion said. She noted that domestic large-cap stock returns are “much higher” on average when an incumbent is running for president than in “open” election years, when gains average just 1.15%. Equities are already taking a beating amid increasing concerns about a slowdown in global economic growth and the collapse in oil prices that began in 2014. “I think the discontent that voters are expressing is because of low growth and the higher level of concern since the crisis,” Ms. McMillion said. “People are looking outside of the establishment.” Nearly seven years into the current recovery, the domestic economy likely “squeezed out” only a 2.4% growth rate last year, according to a market commentary note Wednesday from Scott Wren, senior global equity strategist with Wells Fargo Investment Institute.
Open presidential election years underperform on average
Source: Wells Fargo Investment Institute, Strategas Research, February, 2016. Past performance is not a guarantee of future results. S&P 500 Index Average Performance during Presidential Election Years (1933-2014).
About two months ago, the Federal Reserve raised its benchmark interest rate for the first time in almost a decade, holding it near zero since December 2008 to help bolster a U.S. economic recovery from the financial crisis. Fed Chair Janet Yellen is eyeing the market turmoil as the central bank weighs whether to keep raising rates this year. Wells Fargo is emphasizing diversification to help protect against volatility, recommending investors continue to hold stocks while using investment-grade bonds to help stabilize their portfolios, according to Ms. McMillion, who's based in Winston-Salem, N.C. “We are urging investors not to give up on equities, particularly in such a low interest-rate environment,” she said.

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.