As we progress through 2024, more and more media attention is being diverted toward the election later this year. This election cycle is shaping up to be an explosive contest between Joe Biden and Donald Trump, but what should investors expect leading up to November? As Mark Twain said “History doesn’t repeat itself, but it often rhymes”, and looking at a few key trends across previous election cycles may help provide some solace to investors despite Wall Street expecting an uptick in short term volatility as we approach Election Day.
- The market is nonpartisan, and the political party of the President Elect has had little impact on long term market returns.
The graphic from Capital Group below shows that the market has generally trended higher over the long term, regardless of what political party is in control. The only recent president with a negative average annual S&P 500 return during their tenure was George W. Bush (at -2.8%), who was in office during the Great Financial Crisis of 2008 – which many argue (potentially depending on your political affiliation) was more attributable to economic events rather than any political or policy action taken by the president himself.
2. Making tactical sector bets based on the political affiliation of candidates is risky.
As you can see from the graphic from Fidelity below, each sector has underperformed and outperformed the S&P 500 under both Republican and Democrat regimes. While it may be possible to anticipate potential industry, government, or regulatory changes based on a candidate’s stance on various issues – it is nearly impossible to know much success the elected official will have in implementing these changes, or how long it will take.
3. At the end of the day, investors should ignore the political noise and stick to their established investment plan.
The chart from BlackRock below compares the outcomes for a hypothetical investor who has been fully invested since 1953 to those who only had money invested while a Republican or Democrat was in office. After seeing the chart from #1, it may seem apparent that the fully invested long-term investor had the best outcome – but this chart illustrates the severity of performance lag experienced by both the “Anti-Republican” and “Anti-Democrat” investors. While politics can be emotional and it may be stress inducing to see a candidate you dislike elected to office, time in the market is more valuable than timing the market – and staying invested is likely the best option for long term investors.
Sector performance in presidential election years since 1976 https://www.fidelity.com/learning-center/trading-investing/election-market-impact
It’s time in the market that matters… not the president’s political party https://www.blackrock.com/us/financial-professionals/insights/investing-in-election-years
Stocks have trended higher regardless of which party has been in office https://www.capitalgroup.com/advisor/insights/articles/3-investor-mistakes-election-year.html
Jake Fromm | Lead Investment Analyst, CFS® | It is our mission to help you think differently about your wealth so you can LIVE WELLthy™ today and tomorrow.
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