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The market in election years

The market in election years

February 29, 2024

Pull out a Post-it or sheet of paper. On it you're going to write down a couple numbers. First, write how you think the S&P 500 will do this year if a Democrat wins the Presidential Election. Now right down how you think the market will do this year if a Republican wins the election.

Basically, every election cycle we get a lot of questions on how we are going to manage portfolios in in an election year. What changes should we make before the primaries, during the debates, or after the election day? People want to know what steps they should take today.

These questions make a lot of sense. We all want to be on the "right side of history".

One survey found that nearly half of Americans are worried that the election will have an impact on their retirement. 1

But should we be worried?

Does the Presidential Election cycle even cause movements in the market? Does it matter to the market if we elect a Democrat or Republican?

I have no idea how the market will perform this year, but I do have a handful of historical facts that are worthwhile to share.

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The Market In Election Years

I pulled up the historical market performance for every presidential election year. This is the performance we saw on every presidential election cycle. 2

Check out the above image in this post.

As I look at this, I don't see a trend. 

I hope you don't either.

We see that there were both positive years and negative years when presidents were elected, regardless if they were a Democrat or Republican.

When we pulled the data going back to 1928, we found that over 24 presidential election years 20 of those years were positive. That's 82% of the time, which is statistically significant.  The other four years or 18% of the time the S&P 500 was negative. 

Again, this is during the performance of the market during an year.

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Staying Invested

This is a great chart. 3

This chart shows how staying invested pays off over time. I have shared similar charts before. This shows how investing $1,000 back in 1933, and staying invested through last year would have faired.  That $1,000 would have turned into $21,922,333.

You read that right, that's over twenty-one million dollars.

The party had switched ten times in that period from blue to red back to blue. 

Can you see the trend on which party does best?

I can't. It's too hard too. But you can see the general trend.

Staying invested, regardless of what party is in control has proven to pay off. 

Now on the margin, we can pull the data to see a trend of higher performance of a presidency over a 4 year-term when comparing Democrats vs. Republicans. But that's not the point. The point is not to guess what party will make the market perform best, the point is to support a retirement with reliable cash flow. A proper financial plan can mitigate market swings regardless of what political party is in office.

How could you possibly do that?

A big way is by staying invested.

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The markets and elections come with uncertainty, and that's to be expected.

Do those figures about the market surprise you?

What figures surprise you the most?

When you look at the facts, you can tell that both the markets and the elections bring uncertainty. Which is a good thing. In a free and democratic society, we want elections not to be fixed. We also want markets to fluctuate, that's just how capitalism helps grow our society over time.

There are a number of factors that will sway both markets and elections.

It's not just the national parties that affect election results. It's also foreign policy, demographics, and the economy.

Trying to predict the market will put you in the frame of a guessing game. A lot of money goes into predicting what the market will do day-to-day. That's just not a game I am willing to play and not a gamble most people should take. 

What we can do is focus on facts, and use data-dependent, academically-based investment fundamentals.

So, this election cycle, hopefully, you can have confidence in your financial plan.

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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.