Investing in an Election Year

Benjamin Haas |

In an election year, clients start to ask us some common questions. What will the election do to the markets? I’m afraid if “x” gets elected then [insert scary outcome]. This is all very normal because....navigating the investment landscape during an election year can feel daunting. With political uncertainties, market fluctuations, and a barrage of conflicting information, it’s easy to feel overwhelmed. However, with a disciplined approach and the right mindset, we believe that investing in election years should feel no different than any other.  

The good news is that historically speaking, stocks have continued higher regardless of the party holding the presidency, as you can see in the graphic below. This exemplifies the adage, “it’s time in the market, not timing the market” that’s important in the long run. While elections often bring short-term volatility, it’s crucial to remember that your investment goals likely extend far beyond the current political 4-year cycle. Investing can be an emotional rollercoaster and one of the cardinal rules, especially during election years, is to maintain a long-term perspective and limit the amount of emotionally driven decisions. Investing based on political beliefs has historically led to underperformance compared to staying focused on the long-term...and staying invested. 


A graph and chart of the political party

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For investors who find it challenging to tune out the noise and headline news, there’s potentially more positive insights on that front too. Stocks historically outperform their long-term averages in election years, with the second half of the year typically the strongest. On average, stocks have risen 11.6% during presidential election years since 1926, slightly better than the market’s average 10.0% return in all years (see graphic below). Drilling down further, stocks tend to follow a pattern during presidential election years: sluggish in the first half, followed by a big second half. Historically, the third quarter has delivered the strongest returns, with an average return of 6.2% over those 3 months. 

A screenshot of a graph

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There’s no guarantee the market will follow the historic election year pattern in 2024. And of course, elections have consequences for fiscal policy, which can affect financial markets. But we believe a combination of the Fed’s eventual interest rate pivot and the US economy’s positive momentum make a compelling case for investors to move out of large cash positions and tune out the political noise. As you read headlines in the coming months, remember that news and information are so readily accessible and frequent, that we don’t know anything that isn’t already known and priced into the market. And while we cannot know what happens in the future, the market is a weighing station of many different factors, not just politics. Investing solely based on our political views can be a dangerous approach that can have long lasting impacts on our financial futures. In our view, there’s never been a better time to stay the course.