Have you made the mistake of going online, turning on your TV, or opening a social media app for political content' Have you debated leaving the country or wished that some of your fellow citizens would do so themselves'
If so, you’re not alone!
This election cycle has been completely unhinged. In response, I’ve heard from many people wondering about whether or not they should press pause on their investments for a while. If that also sounds like you, let’s dive into some insights.
A Long History Of Stable Election-Year Markets
Emotions can lie to us. That’s why it’s so important to reflect on what has actually happened, rather than what our panicked minds are telling us could happen. You might be surprised to learn that over the course of decades of elections, the market has remained more or less stable, regardless of the party or candidate. Consider the following statistics:1
Returns When Democrats Are Elected: The S&P 500 has historically shown positive performance in the majority of election years when Democrats are elected, with an average total return of 7.6%. This trend reinforces that investor confidence often remains strong despite political changes.
Returns When Republicans Are Elected: Republican victories have also correlated with positive market performance, with an average total return of 15.3%. The data indicates that the S&P 500 performs well when a Republican is elected.
Overall Election Year Performance: Analyzing the S&P 500 Index returns during presidential election years reveals a strong track record of positive performance. Historically, 83% of Presidential election years have resulted in positive returns for the S&P 500, with an average return of 11.28% across all election years. This trend underscores the resilience and stability of the market, regardless of electoral outcomes.
Please Note: This is not to say that elections have no impact on the marketplace. The data above is simply to call “doomsday” fears into question. It’s true that many election years fall below the average benchmarked S&P 500 performance of 10.26%.2 However, both Democrat and Republican election-year returns are more often than not landing in the green and well above the standard inflation rate of 3.3%.3
But What About More Recent Events?
Okay… so historically speaking, the market has behaved decently. But this is 2024 we’re talking about! Things seem like they’ve been extra crazy recently. Surely exceptions will have been made for this year’s dumpster fire news, right? Well, let’s take a closer look…
How the S&P 500 reacted to the following incidents:
Global Selloff on August 5th, 2024:
Then Two Days Later:
An Attempted Presidential Candidate Assassination: The S&P 500 reached new highs only two days after the assassination attempt on former President Donald Trump (NBC NEWS).
Hurricane in Texas: On July 8th, 2024 Hurricane Beryl hit Texas. However, by mid-July, the S&P 500 had reached an all-time high value (Market Watch).
War in Ukraine: Despite the ongoing conflict, the market has shown resilience (Market Watch).
War in Gaza Strip: In the immediate wake of the war in the Middle East, many major market indexes like the S&P 500, DJIA, and NASDAQ, all saw slight gains of less than 1%. After a slight dip, the S&P 500 recovered and entered a bull market for several months. (CNBC | Market Watch).
Hottest Days on Record: 2024 has a chance of being the hottest year on record. The month of June in 2024 has already broken records. At the same time, the S&P has been on an upward tear setting records of its own in June and July. (Reuters | Market Watch).
Please Note: We’re not trying to make light of any of these events! Quite the contrary. We’re trying to say that the market is a very unpredictable beast.
What Deserves Your Attention Even More Than U.S. Elections?
While election outcomes can be concerning, several other factors often have a more significant impact on your investments. It’s important to focus on these key elements to maintain a balanced perspective and make informed decisions:
Inflation: Inflation can erode the purchasing power of your money, making it crucial to invest in assets that can outpace inflation. This ensures that your investments grow at a rate that exceeds inflation, preserving and increasing your wealth over time.
Interest Rates: Interest rates set by the Federal Reserve can significantly affect the stock and bond markets. Lower rates generally boost stocks as borrowing costs decrease, making it cheaper for companies to finance growth. Conversely, higher rates can lead to market volatility as the cost of borrowing increases. Despite these fluctuations, long-term investors typically find that markets adjust and continue to grow.
Geopolitics: Global events, such as wars or international conflicts, can create market instability. However, these events often have a temporary impact, and markets tend to recover over time. For instance, the war in Ukraine may have contributed to a substantial decline of 7.4% in the S&P 500 over several months, but the market has shown resilience and recovered since then, reaching new highs.
Your Personal Goals (The Most Important!): Your financial objectives should always take precedence over market anxieties. One of my favorite questions to ask clients is, “When do you plan to turn that investment into cash to use it'” Often, the answer will guide you in determining whether you can handle fluctuations in your account balance. Define your goals, risk tolerance, and time horizon, and make investment decisions that align with these personal factors. Keeping a long-term perspective helps you stay focused on your financial journey rather than being swayed by short-term market events.
The Right Financial Advice Takes Elections (And Other Craziness) Into Account
Proper financial planning accounts for things like election cycles and other causes of market volatility. Here’s why it’s important to maintain a comprehensive approach:
Never Try To Time The Market: Attempting to time the market based on political events can lead to missed opportunities and losses. Markets are unpredictable, and trying to outguess them is often a losing strategy. Historical data supports the idea that both Democratic and Republican winning election years have resulted in positive returns more often than not, reinforcing the benefits of staying invested.
Remember the Media’s Agenda: Whenever an event stirs fear, tugs at your emotions, and makes you consider insulating your portfolio, remember the media’s primary goal. Media outlets are businesses, and their main objective is to capture your attention and keep you engaged with their content. Even those with journalistic integrity can embellish stories without facing consequences, potentially leading you to make harmful decisions. Like the sun, they’ll rise again tomorrow, eager to draw you back in.
If You’re Playing The Long-Game, Don’t Press Pause: Long-term investors should stay the course. Historical data supports the idea that markets tend to grow over time, regardless of short-term political upheavals. For instance, despite various crises in 2024, including geopolitical conflicts and natural disasters, the market has shown resilience, indicating that long-term investment strategies can weather such literal and metaphorical storms.
Work the Right Plan: A well-crafted financial plan keeps you aimed in the right direction, practicing the right financial fundamentals. It can adapt itself when appropriate without sabotaging your long-term goals, such as retirement. This flexibility ensures that your plan remains aligned with your objectives while accommodating changes in the market landscape.
Still Unsure? Please Reach Out Tour Our Team!
As a financial advisor, I’ve helped clients navigate storms of all kinds. Whether they be bear markets, recessions, natural disasters, personal disasters, or nutty election cycles, the right financial plan has helped them keep their head.
If you’re still feeling nervous or unsure of what to do with your investments, I completely understand. That’s why I want to provide you with an opportunity to reach out to me or my team directly. Together we can talk through your personal situation and concerns. Please use the button below to schedule some time with our team before making any final decisions about your future.