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Election Season is Upon Us

Keel Point

February 27, 2024

It may be hard to believe, but election season is upon us once again. The primaries have already started, and political rhetoric is heating up. So too are concerns about how the elections might impact the economy and the financial markets. Are investment portfolios at greater risk this year and next; does it matter which party wins the White House, and how should investors prepare for what’s to come?

To help answer these important questions, we look back at market behavior in past election years as well as how investors fared under Republican and Democratic administrations. The data may surprise you and may even calm your anxiety about potential political outcomes, at least regarding the long-term outlook for your investments.

Surviving an election year

When we examine stock market performance during a presidential election year itself, it tends to fluctuate from quarter to quarter as the year progresses. During the first four months of the year, the market moves more sideways when candidates are working through primaries and generating a lot of information uncertainty. Once the candidates are identified, markets tend to catch up to positive earnings and economic news.

But choppy markets typically return again due to rising uncertainty during the heat of the presidential and congressional campaigns in September and October. Then in November, markets tend to rebound after the election results are known and greater certainty around the future is restored, regardless, mostly, of who wins the election.

While uncertainty around the election process and candidate proposals could increase market volatility, it would be a mistake to overreact to short-term concerns. Rather, if we let history be our guide, taking a longer-term view and looking beyond the election cycle may be the preferred approach.

Does it matter who wins the White House?

The country is arguably more divided than ever politically, and party loyalties are strong on both sides of the political spectrum. But when it comes to your investments, does it really matter which party wins the White House?

Looking back at stock prices in presidential administrations over the last one hundred years, the answer appears to be “no”.

As the graphic above shows, stocks have trended higher, and at not too dissimilar rates, regardless of which party has been in the White House.

If we look a little closer, the most favorable political scenario for the stock market has been a divided government, which is not an unlikely outcome this November.

The theory is that divided government limits the likelihood for major policy changes and/or significant government intervention in the economy. Leaving the markets well enough alone lowers uncertainty and market volatility.

Stay Calm

In an election year, heightened anxiety about political outcomes is unavoidable. However, when it comes to your investments, it may be advisable to stay calm and take a long-term view. Regardless of the party in power, the stock market has proven resilient, rising on average two-thirds of the time, and providing a healthy one-hundred-year average annual return of 10.5%.

Reach out to your Keel Point team

As you think about your goals for 2024, keep your Keel Point team informed about meaningful changes in your life or unexpected situations that arise, so we can continue to make sure your investments align with your purpose and goals.

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