Maintain Your Investment Strategy During Election Years

With just over two months to go until the 2024 US Presidential Elections uncertainty in the economy and political landscape is increasing. We updated our US Presidential Election market analysis from 2020 (Do Presidential Elections Impact Markets) with the latest data, which we discuss below.

Our general takeaway from 2020 remains the same – US Presidential elections tend to have limited impact on broad market performance, regardless of party win. That said, in the time leading up to an election, and in the 12 months after, there tends to be an uptick in market volatility. We suggest investors use these times to strategically add to portfolios.

Headed into the 2024 US Presidential Elections we have four tips for investors.

1. Stay Invested

Our #1 piece of advice for investors during election years is Stay Invested.

Since 1957 the S&P 500 has gone up an average of 8.5%. While US Presidential Election years do generate increased market volatility (see Topic 2 below), the market on average is still up 7.2% each year.

2. Take Advantage of the Volatility

Media outlets and sell-side analysts typically compound the impact of political events around election years. Whether it’s political debates, candidate rhetoric, or potential policy implications the media capitalizes on “newsworthy” soundbites and sensationalizes them.

Historically this has led to market volatility being elevated higher during election years, especially in the final months leading up to the election. In our analysis we noted volatility tends to be roughly 10% higher through election years in the US, as well as maintain its seasonal trend of spiking in the back half of the year.

In general November tends to experience the highest level of market volatility. And during election years shifts in the majority political party, or expectations for shifts, tend to drive volatility higher in the short-term.

That said, the volatility tends to subside shortly after the election. We suggest investors keep cash on the sidelines in the final months leading up to an election and deploy it strategically as markets overreact to news. As we note below, regardless of political party markets have historically always gone up. Capitalizing on the short-term volatility spikes can help boost long term growth inside portfolios.

3. Ignore the Politics

Presidential elections and changes in political leadership generally lead to short-term fluctuations in the S&P 500, with more pronounced impacts when there is a shift in the presidential party.

In our analysis we analyzed every Presidential Election since 1960 to see how big of an impact political party had on the markets. Interesting, markets tended to perform best when there was a change from Republican to Democrat, increasing by 47% over the course of the President’s term. Surprisingly during a shift from Democrat to Republic markets only grew by 38% over the course of the President’s term.

Incorporating the recent data from 2020 elections we updated our analysis of market performance leading into November, and in the 12 months following. In general markets tend to be slightly positive in the lead up to the election, likely due to elevated uncertainty with investors. However, in the 12 months following an election, regardless of which party wins, markets on average are 8.3% higher.

Over the long term, the S&P 500 tends to recover and grow regardless of the political party in power, though Democratic presidencies often see stronger performance when both the House and Senate are also controlled by Democrats. Economic policies and investor confidence also play crucial roles in these market dynamics.

Most important is this – over the long run markets have demonstrated strong growth and moved higher, irrespective of which political party was in office.

4. Remain Focused on the Long-Term

Elections bring volatility and noise into markets. Predicting elections is difficult, and in our view missed opportunity from not being invested (vs. correctly picking the winning party) outweighs any short-term gain.

We urge investors to ignore the day-to-day uncertainty of markets and remember that over time, regardless of political party, markets have historically gone up.

Disclosures

This commentary reflects the personal opinions, viewpoints and analyses of the author providing such comments, and should not be regarded as a description of advisory services provided by Defiant Capital Group or performance returns of any Defiant Capital Group client. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Defiant Capital Group manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

A word on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.

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