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Growth vs. Value in US Election Years

Growth vs Value in US Election Years

By: Catherine Yoshimoto, Sr. Index Product  Manager

In May, President Obama concluded his last speech as President at the annual White House Correspondents’ Dinner with two words, “Obama, out” followed by a mic drop. As you may have heard, 2016 is big year for the United States: not just  a presidential election year but one that concludes the maximum term of the incumbent president. The impending election of a new leader to govern the world’s largest economy will undoubtedly affect global markets. This got me thinking: amidst so much political uncertainty, do the markets tend to gravitate towards any particular style?

I decided to take a trip back through history to see if I could find a trend. I started my analysis at the beginning of the Reagan era – the election year 1980 – and tracked the performance during each election year since for the Russell 3000 (FTSE Russell’s broad measure of the US equity market), the Russell 3000 Value and the Russell 3000 Growth indexes. The findings were revealing about market psychology. As you can see in the chart below, in seven out of the nine election years examined the Value Index outperformed both the Growth index and the Russell 3000 as a whole. In each of these nine years, Growth or Value outperformance was established by October month-end, i.e. immediately before election day in early November, and held through December year-end.

Growth versus Value in Recent US Election Years

Source: FTSE Russell, data as at June 9, 2016. Past performance is no guarantee of future results. Please see the disclaimer for important legal disclosures.

It seems that the Value style has performed higher when faced with the uncertainty of an upcoming election. It is the uncertainty itself, rather than any expectation of precisely who the next president will be, that appears to drive the Value trend. With 2016 only about halfway through and the presidential election looming closer, it is anybody’s guess which way the markets will go from here. However, so far this year the historical trend has held true. The Value index has outperformed both the Growth index and the Russell 3000 year-to-date as of June 9, 2016.

In uncertain times like this, therefore, market participants can use the Russell Style Indexes as benchmarks to measure market segments based on value and growth variables or as research tools to analyze historical performance.

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