Navigating the Stock Market in an Election Year

I've seen firsthand how election years can stir up a whirlwind of emotions among investors. It's a bit like watching a thrilling political drama unfold, with all of its twists, turns, and cliffhangers. But just like any good story, the stock market has its own script during election years. So, let’s dive into the historical narrative and see what we could expect as the 2024 presidential election approaches.

Historical Performance of the Stock Market in Election Years

Data from the past century shows a fascinating trend: the S&P 500 (large, publicly traded US companies) generally ends with a positive return during election years. On average, the S&P 500 posted a gain of 4.97% by the time the election day came around, and 78% of those years ended up with positive returns.

If we trace back those years that were considerably negative, those were years where there was an economic recession underway. It shows that while there may be increased uncertainty and volatility in an election year, the stock market will deliver positive results unless the underlying foundation of the economy is crumbling and a recession is unfolding, barring a sudden and significant unforeseen event.

Staying Invested Despite Political Party

Having biases is typical human behavior, and it is common to feel more comfortable investing when the political party in power is aligned with our own views. However, as investors, we should attempt to look beyond our biases and understand that, while the party in power can influence market sentiment and certain policy areas, it's not the sole driver of market performance.

Factors such as economic growth, corporate earnings, interest rates, and global events play a far more significant role. In fact, we are better off staying invested regardless of the political party in power. Data shows that if we were to only invest when one political party is in power, we have the potential to miss out on tremendous growth. The chart below tells a compelling story:

While the political climate can introduce short-term uncertainties, it's essential for investors to maintain a long-term perspective. The stock market has a history of rewarding patient and disciplined investors and at MEIRA Wealth we plan to stay informed, invested, and diversified according to your Investment Policy Statement (IPS) allocation. As always, feel free to reach out to your advisory team should you want to discuss your personal investment strategy in more detail.