2024 Election
We vote not because we’re liberal or conservative, but because we’re American citizens, and that is our responsibility.
– George W. Bush
As I write this month’s Partner Talk letter, we are just a few days from the 2024 U.S. presidential election. The first thought that comes to mind is “thank God this is almost over!” It seems like this election cycle has lasted forever and living in the “battleground state” of Pennsylvania has meant enduring non-stop political ads and messages on TV, radio, social media platforms, in the mail, via text messages and people knocking on the front door. It has been truly relentless, negative and gloomy. Perhaps the readers of this letter feel the same way? The good news is, despite these tensions, the United States has a long history of weathering turbulent political climates.
Social media amplified the divisiveness of the 2024 election cycle, spreading information rapidly and often devolving into contentious exchanges. Platforms like Twitter (now X), Facebook, and TikTok allow supporters and detractors of each candidate to engage in constant debate, sometimes escalating into heated or even hostile interactions. The rapid sharing of information, often without full context, fuels misunderstanding and entrenches opposing views, making it more difficult for Americans to find common ground.
For investors this volatile climate often prompts concerns about economic stability and market performance. However, despite the current environment, historical data and economic fundamentals suggest that the financial markets will likely remain resilient in the long run.
Historically, U.S. presidential elections have introduced periods of uncertainty. Nevertheless, since 1950, the stock market has shown resilience, averaging a 9.1% return in election years. This pattern indicates that financial markets can navigate the uncertainties of political transitions without suffering significant long-term setbacks. For example, the S&P 500 has shown average returns of around 7% during election years since 1952. Although slightly lower than typical annual returns, this performance highlights that markets are adaptable and have maintained positive growth trends even amid election-year volatility. https://www.fidelity.com/learning-center/trading-investing/election-market-impact
Several past elections serve as useful examples of how markets adapt to political changes. In 2008, Barack Obama’s first election came amid the Global Financial Crisis, initially causing significant market disruptions. However, in the months following his election, as his administration’s policies became clearer, markets rebounded and entered a period of sustained growth. Similarly, in 2016, Donald Trump’s unexpected win led to immediate market fluctuations, but the initial shock was soon offset by rallies fueled by expectations of tax cuts and deregulation. These examples underline how markets tend to adjust positively to political outcomes once policies are more certain, reinforcing the view that elections introduce temporary disruptions rather than long-term declines.
The stock market’s historical resilience post-election further supports the argument for stability. Data shows that in nine out of the ten election cycles since 1984, the stock market performance was positive at the end of the 12-month period following the election, even when major economic challenges were present. This trend underscores the idea that markets are capable of absorbing political shifts and adjusting to the economic reality under new administrations. The broader economy, including factors like global trade, monetary policy, and technological advancements, has a more profound impact on long-term market stability than the specific political party in power. https://www.plantemoran.com/explore-our-thinking/insight/2024/10/how-have-stocks-performed-leading-up-to-and-following-elections-in-the-us
In addition to domestic policy shifts, issues such as inflation, supply chain dynamics, and Federal Reserve policies often play a more substantial role in shaping market performance. For instance, inflationary concerns may lead to Fed interventions, such as interest rate adjustments, which impact market trends independently of election outcomes. These broader economic forces can counterbalance election-related market disruptions, reinforcing the stability of financial markets over the long term. While political shifts may affect certain sectors for better or for worse, overall market trends are more responsive to greater macroeconomic influences.
Investor sentiment also plays a significant role in determining short-term market movements, especially during election years. Despite the polarized atmosphere surrounding the 2024 election, surveys of investor sentiment show cautious optimism. While some concerns persist around inflation and economic recovery, these sentiment indicators suggest a sense of confidence in the market’s long-term outlook. Historical data from sentiment surveys reflect that investors generally return to a stable outlook once the political landscape stabilizes, reaffirming the importance of maintaining a long-term perspective during election cycles.
Another reason for long-term market stability is the market’s ability to “price in” anticipated policy changes before they occur. For instance, if an administration’s economic policies are expected to favor certain industries, investors often act in advance, making market adjustments ahead of official changes. This phenomenon allows the market to absorb political shifts efficiently and maintain its overall trajectory. By adjusting early, markets smooth out the potential volatility that might otherwise arise from policy transitions.
Data excludes 2001 to 2002 due to Senator Jeffords changing parties in 2001. Calendar year performance from 1933 through 2022. Source: Strategas Research Partners, as of November 5, 2023.
As the above chart shows, while the 2024 U.S. presidential election has been characterized by intense rhetoric and polarized views, the stock market historically has tended to do well regardless of how power is distributed between the political parties. Historical data and economic fundamentals underscore the markets’ ability to weather election-year volatility and adjust to post-election policy changes.
For our clients, the key takeaway is the importance of focusing on long-term strategies and economic fundamentals rather than reacting to short-term political developments. This is what the PMA Investment Committee is laser focused on. Election cycles bring their share of market dips and rallies, but our philosophy is that a diversified, risk-controlled long-term investment approach will benefit from the market’s overall resilience. In the end, political changes, while impactful, are just one of many variables that markets encounter and adapt to.
As my colleague, Fred Snitzer, wrote back in July, our advice to our clients during the election cycle is the following:
- Ignore political pundits who confidently declare which candidate will be better for the economy.
- Do not change your portfolio in the lead up of an election, simply because of an election.
- Do not change your portfolio after the election, regardless of who wins, simply because of the election.
- Pray for America, which we still believe is, in the words of Abraham Lincoln, the “last best hope of earth.”
