As we approach the end of the first quarter of 2024, the market
has managed to continue to climb, even with headwinds such as
geopolitical conflicts and elevated interest rates still prevalent
features in the daily newsfeed. Although investors remain
concerned about prices at the grocery store, one worry overrides
all others: the election. According to a recent investor survey by
Janus Henderson, over 78% of investors cite the election as their
biggest worry in 2024.
So, what do we know so far about the election? Even though
we are in the early stages of the election cycle, now that Super
Tuesday is over it appears a rematch between Biden and Trump
is a highly probable outcome.
The question is, is it important—at least from an investment
perspective—who wins the election? A review of historical data
indicates that there is limited correlation between national
election outcomes and capital market performance. Even though
election results can impact government policy, laws and foreign
relations, data studied over the past 85 years indicate there
is minimal impact on financial market performance based on
possible election outcomes.
The average return of the S&P 500 Index between 1937 and 2022
shows that election-year returns have on average been positive
for portfolios. Specifically, the average return from 1937 to 2022
of the S&P 500 was 11.9%. In non-election years, it was 12.5%, and
in election years it was 9.9%.* So, while election years have been
less accretive to portfolio returns, they still have historically been
positive.
Conversely, economic and inflation trends show stronger
and more consistent effects on market returns than election
outcomes. Rising growth and falling inflation are a combination
that has often led to returns above long-term averages while the
opposite often corresponds to below-average market returns.
Earnings trends are a more reliable indicator of market returns
than presidential elections.
This does not mean there will never be a negative impact on the
markets due to a change in leadership which cause changes in
policy (i.e. taxes). But the actual election is unlikely to create
anything more than short-term volatility and should not impact
long-term investment strategies.
The 24-hour news and social media torrents have been significant
contributors to the rise of investor anxiety over the past several
election cycles. Combined with financial concerns, this formula
makes emotions run high and impact investors’ moods. This can
lead to poor decisions which can impact long-term financial goals.
It is important to consider your time horizon in the allocation of
your investment portfolio. If you are pre-retirement or in the early
stages of retirement, you could have a 20-30 year time horizon
for your investments, and time should help smooth the volatility
inherent in capital markets. Review your allocation to ensure it is
appropriate for your long-term goals, rebalance if necessary, and
stick to your strategy.
However, if you are in the later stages of retirement, a thorough
review of your allocation—and some adjustments—could ease
some of your anxiety. A condensed time horizon means less time
to recover from market downturns. Perhaps a less risky portfolio,
with a higher amount in cash or bonds, could provide greater
peace of mind. A review from a financial professional can help
you see the impact of this on your overall plan.
Besides the financial impact of the election, there is also an
emotional impact that cannot be discounted. Statistics show that
investor sentiment directly correlates with whether the side they
prefer won or not. Since it is such a polarizing event, full of often
nasty rhetoric, it is important to protect yourself from becoming
overwhelmed from the news cycle. Stay informed, but don’t let
the news rule your day. It is a long cycle, and your mental-and
physical health are more important than the outcome of one
election.
No matter what happens, it is best to stick to your financial
plan. If it needs updating, this is a great time to do it, as you may
not be able to control the election results (besides voting), but
you can control your own financial picture. This election year
will eventually be over, but decisions you make regarding your
finances should be based on your goals, not the results of the
election. As always, our team at CNB Wealth Management is here
to answer your questions and help you to meet all your financial
goals.
This material is provided for general information purposes only. Investments and insurance products are not FDIC insured, not bank deposits, not obligations of, or guaranteed by Canandaigua National Bank & Trust or any of its affiliates. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please consult your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.