What Does the Upcoming Election Have In Store For Your Portfolio?
As we approach another pivotal election, millions of Americans are preparing to cast their votes. Regardless of political leanings, elections invariably influence various aspects of life, including investment strategies. The significant question for investors is: How do elections affect financial markets?
The answer is nuanced. While elections do impact markets, it's often more about timing within the presidential cycle than the specific party in power. Historically, both Republicans and Democrats have overseen periods of market growth and decline. This indicates that the U.S. economic framework is resilient, not solely reliant on the occupant of the Oval Office.
A review of stock market performance dating back to 1928 shows that average returns under Republican administrations are slightly lower, primarily due to the 2008 financial crisis under George W. Bush. However, excluding this anomaly levels the playing field between the two parties. This highlights that broad market returns are not significantly dictated by which party is in power.
The real advantage for investors lies in understanding the cyclical nature of market performance throughout a presidential term. Typically, the second year—marked by midterm elections and increased uncertainty—yields the lowest average returns of about 3.33%. The first and fourth years usually see average performance, while the third year often experiences the strongest growth as uncertainty diminishes and policies solidify.
This cyclical pattern suggests that 2025 might see standard market behavior, irrespective of the upcoming election's outcome. Notably, the fourth quarter of election years historically yields strong performance, with positive returns over 75% of the time. Moreover, the latter half of election years, including the third quarter, has been positive over 83% of the time since 1928. This indicates that markets are more influenced by their position in the presidential cycle than by election outcomes.
For instance, the first year of Donald Trump's presidency in 2017 saw nearly an 18% market gain, while Kamala Harris's vice presidency in 2021 witnessed a 24% increase for the S&P 500. This isn't an endorsement of any candidate but rather an illustration that significant gains can occur under various administrations.
As investors, it's crucial to remain objective and informed, recognizing that domestic equities have a fair chance of performing well regardless of election results. However, as uncertainty potentially rises, it's important to leverage available tools to monitor and adapt to market changes effectively. At George Wealth Management we use valuable resources to help navigate these fluctuations and maintain a well-managed portfolio amidst the political landscape. If you would like to discuss how your portfolio is positioned and want more infromation on how we help our clients persue their financial goals, please schedule a time for us to chat buy clicking here.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Past Performance does not guarantee future results.