One way to view the markets now

Current question being put to me is - How Will the new administration Impact the Markets?

U.S. presidential election years followed by new administrations hitting the ground, tend to be drama-filled and emotionally charged. For some investors, that means more stress. But I’d recommend pushing in the opposite direction, by recommitting to being dispassionate, disciplined, patient, and focused on the long term. Even though it often feels like everything is riding on the outcome of the election, history reminds us—very clearly—that election results have not driven market results over the long term.

The economy and corporate earnings do.

For as long as I’ve been an investment advisor, there has been investor sentiment that if candidate so and so wins the election, it will be terrible for the stock market. But a look at past election year returns—as well as longer-term returns for U.S. stocks—demonstrates that such an outcome has never materialized. In the cases where we have seen post-election downturns, it has been tied to broader economic factors, not the election or re-election of the president.

• Since the inception of the S&P 500 in the 1920’s, there have been 24 U.S. presidential elections.

• In 20 of them, the S&P 500 registered positive total returns.

• In the four instances when the stock market fell (highlighted in yellow below), the U.S. economy was in

  • the Great Depression,

  • the early days of World War II,

  • the 2000 tech bubble, and

  • the 2008 Global Financial Crisis.

• The last time the stock market fell in a presidential re-election year was 1940.  

Morgan Stanley1

It is common in presidential election years for investors to assume their political party is better for the stock market. But history says the stock market goes up regardless of how power is divided. Looking back at just the last eight years, some investors may have held back on equities during President Trump or President Biden’s respective tenures, based on politically driven perceptions about their ability to lead. But that would have been a mistake. Stocks have risen substantially over the past eight years under both administrations and currently trade near all-time highs. 

This is not to say that politics and policies do not matter to economic growth and corporate earnings. They do. Regulatory changes, tax law changes, energy policy and foreign policy would be fundamentally different depending on who wins the 2024 election. But an important point for investors to consider is that markets are already familiar with both candidates and their policy proposals, since both candidates have been president before. There’s still plenty of uncertainty swirling around this election, but perhaps not as much as some investors think.

At the end of the day, no one knows how the future will unfold. But I do know and believe that changing your long-term strategy because of a short-term unknown is not a prudent approach – it hasn’t been throughout history, and I do not think it would be prudent today.

Bottom Line for Investors

Over time, the stock market responds more to long-term earnings trends and broad-based economic growth, not to changes in political leadership. The emotional gravity of an election may make it appear as though the outcome will make or break the nation. But this mindset puts far too much emphasis on political figures and policies, and too little emphasis on the real engines of the U.S. economy:

• Corporate earnings,

• Small business growth,

• Infrastructure investment,

• Personal consumption,

• and innovation.

Politicians come and go, but the desire to grow, innovate, and pursue profit remains a constant.

Once last note on this subject:  

A. Looking at 70 years of returns, a Democrat in the White House has been better for investors. Since 1953, $1,000 invested when a Democrat is president, sold to cash when a Republican takes office, then reinvested when a Democrat returns turns into $62,000.

B. The opposite strategy—only investing when a Republican sits in the Oval Office—only grows to $27,000.

C. However, this overlooks critical context:

Investors would have been better off ignoring Washington, DC entirely.

The original $1,000 investment turns into nearly $1.7 million for those who never acted on their political preferences and remained invested throughout.

For further discussion and review of your portfolio, please don’t hesitate to contact us to schedule your in-person meeting, a zoom or phone call, which ever you prefer at your convenience.

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Any opinion expressed in this forum are not the opinion or view of Osaic Advisory Services, LLC (Osaic Advisory) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.