Is a change of prime minister good for the markets?

    24 July 2019

    Is a change of Prime Minister good for the markets? The answer, in recent history, has generally been yes. In all but one of the past five Prime Ministers markets have subsequently risen over periods of three, six and 12 months, in most cases substantially so. The exception was Gordon Brown, who came to the job six weeks before the credit crunch and three months before the run of Northern Rock. Within a year of taking office Britain was in recession – and the FTSE 100 had fallen by 14 percent. The election of Tony Blair seemed to have the best effect on the stock market, sending it up by more than a third over 12 months, but other Prime Ministers have also succeeded in boosting markets, at least in their first year in office. With John Major the rise was 11 per cent, David Cameron 15 percent and Theresa May 10 per cent. This is a remarkable record given that the average annual return of the FTSE100 since it was launched in 1984 has been 6.6 percent, and that it is less than 10 per cent up over the course of this entire century.

    Is there any reason for this, or is it just luck? There is a case for saying that markets do well after an election because it ends uncertainty and gives the economy a clear direction. Investors are likely to be more shy of committing their money if they are unsure of what fiscal and monetary policies will be in a few months’ time. Once the election is concluded, on the other hand, they know what to expect. Of the past six Prime Ministers, however, only three have come to power as s result of a general election – the others took over mid-term. There may still have been a sense, however, that the arrival of a new incumbent at Number 10 would bring a period of political uncertainty to an end. Theresa May, for example, came to power as a direct result of the Brexit referendum, and took office while markets were still suffering a very brief, post-Brexit slump. On the other hand, John Major became Prime Minister right at the beginning of a recession. By the time he had been in office for a year the housing market was suffering a steep reversal and repossessions were soaring. The stock market, however, continued to rise.

    What will Boris bring to the markets? It would be hard to imagine a more uncertain time. In three months’ time we may be a week away from Britain crashing out of the EU without a deal. Then again, that danger has been apparent for many months, and it hasn’t stopped markets rising this year. If you want to make your investment decisions based on past record, now might be a brave and interesting time to commit to the FTSE 100.

    John Major

    3 months      +6.2 percent

    6 months      +10.7 percent

    12 months    +11.3 percent

    Tony Blair

    3 months      +8.8 percent

    6 months      +8.4 percent

    12 months    +33.7 percent

    Gordon Brown

    3 months      -1.6 percent

    6 months      -2.0 percent

    12 months    -14.4 percent

    David Cameron

    3 months      +14.7 percent

    6 months      +13.1 percent

    12 months    +15.6 percent

    Theresa May

    3 months      +5.1 percent

    6 months      +4.6 percent

    12 months    +10.6 percent