How Will the 2024 Election Affect My Investments?

One key factor that influences the stock market in a presidential election year is uncertainty. Elections can bring about changes in policies, regulations, and government spending, which can impact businesses and industries in different ways. This uncertainty can lead to fluctuations in the stock market as investors try to anticipate the potential outcomes of the election and how they may affect various sectors of the economy. 

Since the market doesn’t like uncertainty, some investors take this to mean that they should just ‘go to cash’ to ride out the election. Before an investor makes this move, they might consider some data first.  

According to a study by LPL Financial, the S&P 500 index has historically performed better in years when a sitting president is up for reelection compared to years when a new president is elected. The study found that the average annual return for the S&P 500 during a presidential election year when the incumbent president is running for reelection is around 10.1%, compared to an average return of 7.5% in years when a new president is elected. This suggests that investors may have more confidence in the economic policies of a sitting president and are less concerned about potential changes that a new administration may bring. But wait, even if 10.1% is better than 7.5%, are we missing the fact that these are both fantastic results! 

It must be noted, however, that, say it with me…past performance is not indicative of future results, and there are many other factors that can influence the stock market in any given presidential election year. For example, market volatility tends to increase in the months leading up to an election as investors react to political developments and news. This can lead to short-term fluctuations in stock prices as investors buy and sell based on speculation and uncertainty.

Another factor that can influence the stock market in a presidential election year is the impact of political events and policies on specific industries and companies. For example, healthcare stocks may be affected by changes in healthcare policy, while energy stocks may be influenced by regulations on fossil fuels and renewable energy. Investors may adjust their portfolios to account for these potential changes, which can lead to shifts in the overall stock market.

Additionally, the stock market may also be influenced by economic indicators and external factors that are unrelated to the presidential election. For example, global economic conditions, interest rates, consumer spending, and corporate earnings can all play a role in determining the performance of the stock market. These factors can sometimes overshadow the effects of the election and lead to market movements that are driven by broader economic trends.

With all of this in mind, it’s key to understand that any single election year is a sample size of one, meaning that all the averages in the world simply point to the averages, and not what will happen in the year 2024. This is its own election year, and it could be the year that pulls down the averages over time; or this could be the year that adds to the averages. 

So, what does it all mean? While there may be some historical patterns that suggest a relationship between presidential election years and the stock market, it is important for investors to take a comprehensive view of all the factors that can impact stock prices. While elections can introduce uncertainty and volatility into the market, there are many other factors that can influence stock performance in a given year. By staying informed and keeping a diversified portfolio, an investor can navigate the potential ups and downs of the stock market in a presidential election year and make informed decisions to help achieve their financial goals. 

When it comes to your personal retirement planning, ensure that you have the appropriate amount of your retirement income secured. If you’re not confident in this area, then you’re risking the foundation of your retirement and financial security. For those who may already be retired, consider securing your base either through CDs, guaranteed annuities, or a combination of dividend-paying stocks and high-quality bonds. Once that foundation is in-place, reaffirm the amount of risk you’re taking with your discretionary investments. These are the fundamentals we need to lock-in.

For younger savers and investors, the key is to maintain a long-term focus. Any particular election year is not likely to upend your longer range goals so it’s best to stick with the plan. In fact, a drop in the market helps those who are making regular contributions to a retirement account from each paycheck. 

What we wake up to on November 6th in 2024 will go a long way toward reducing the uncertainties that the stock market dislikes so much. The result may not be what you or I would prefer, but the market will finally have an opportunity to price in the results of the election, so we can move forward. After all, the key to winning at long-term investing isn’t timing the market; it’s time in the market.