Should Investors Worry About the Upcoming Presidential Election?

Every four years, voters come together to determine which party will hold power in the Oval Office and on the Congressional floor. While this decision carries an immense amount of weight, it’s not just voters who are paying close attention to the outcome—investors are focused on election results as well.

While the stock market is impacted by many factors (geopolitical conflict, corporate changes, inflation, natural disasters, etc.), potential changes in political power are likely to be an important influence in 2024. The question is, should investors brace their portfolios for impact this November? Or is it better to maintain their holdings and prepare to ride out potential election-related volatility?

We’ve pulled together the data to show how presidential elections have historically impacted the markets, what investors have done to prepare in the past, and considerations you should discuss with your advisor in preparation for November.

Key Takeaways

• Uncertainty about the next administration typically leads investors to seek safety, often moving investments to cash.
• Focusing on market fundamentals and ignoring short-term election-related volatility usually benefits investors.
• A resilient U.S. economy and potential Federal Reserve rate cuts in 2024 might influence the markets more than politics.
• Historically, stocks outperform their long-term averages during election years, with stronger performance in the second half, although this pattern is not guaranteed for 2024.
• While elections can influence fiscal and regulatory policies, long-term investment strategies should remain the focus amid political noise.

The tendency to stockpile cash‍

Investors tend to stockpile cash in election years, but staying fully invested for the long term can have a meaningful impact. Data shows a higher tendency for investors to choose money market funds over stock and bond funds during these periods, reflecting a flight to safety amid increased uncertainty—a common theme in behavioral finance. However, even short-term cash positions can negatively impact future account balances if any significant “best days” of returns are missed.

Historical market performance during election years

Since 1926, stocks have risen on average 11.6% during presidential election years, slightly outpacing the market’s 10.3% average annual return. More specifically, the pattern we see is that stocks typically show sluggish performance in the first half of election years, followed by stronger gains in the latter half.

Historically, the third quarter has yielded the highest returns, averaging 6.2%. Despite strong political sentiments and concerns, history indicates that presidential election years are generally favorable for stocks, particularly in the second half.

Long-term market resilience

Amid continuous political shifts, the S&P 500 has achieved a cumulative return of approximately 4,790% from January 1, 1974, through December 31, 2023. This demonstrates the market’s resilience regardless of the political landscape. Investors who remain invested perform significantly better than those who adjust their investments based on which party is in power.

The bottom line

The upcoming presidential election undoubtedly adds a layer of uncertainty for investors, prompting many to consider shifting their strategies. However, historical trends indicate that maintaining a long-term perspective and staying invested generally leads to better outcomes.

Election years, while volatile, have often resulted in favorable market performance, particularly in the latter half. Thus, rather than reacting to short-term political fluctuations, investors should remain focused on their overall investment goals and strategies. Consulting with a financial advisor can help navigate this period with confidence, ensuring that decisions are grounded in long-term financial health. Remember, past performance does not guarantee future results, but history suggests that a steady, long-term approach often yields the most robust financial returns.

If you’d like to speak directly with the Conway Wealth team, simply fill out this form, email info@conwaywealthgroup.com or call 973.285.3640.

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This information is provided for illustrative purposes, is neither an offer to sell nor a solicitation to buy any security mentioned and is not intended to be investment advice. Past performance is not a guarantee of future results. Forecasts presented herein reflect our judgment as of the date of this presentation and are subject to change. Data is as of the date noted and subject to change.

Investment advisory and financial planning services offered through Summit Financial, LLC, an SEC Registered Investment Adviser, doing business as Conway Wealth Group (4 Campus Drive, Parsippany NJ 07054. Tel. 973-285-3600). 6668732.1

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