Let Me Clarify

My journey into the financial planning and investing world began in the spring of 2012. I changed my college major from Education to Finance with a concentration in personal financial planning. That summer I was selected for a ten-week paid internship with a well-known brokerage firm. The culmination of that internship was in week nine where I had to prepare a presentation to around 100 clients that worked with my supervising advisor. The topic was election-year markets.

That year President Obama was running for re-election against challenger Mitt Romney. I was tasked with presenting objective information regarding how the election could potentially influence the stock market. There are many pre-conceived notions about this topic:

1. The stock market doesn’t do well in election years.
2. The market will “crash” if the “wrong” person wins.
3. The Federal Reserve doesn’t change policy during election years.

When you look at the data (sources at footnote) and put your feelings in the rearview mirror, here’s what you find:

1. Since 1928 the S&P 500 has averaged 8.0% in non-election years and 7.5% in election years.
2. Red or Blue, we’ve seen rallies and declines in the market on both sides during election years.
3. The Fed has changed interest rates (up or down) in 16 of the last 17 election years.

The research shows time and time again that policy matters much more than a person and the health of the economy is usually a much bigger driver. The interesting thing to me is that some of the best years in the market were when we either had a Democratic President or when the Republicans led Congress. Talk about balance.

I won’t shy away from the fact that we are still human, and we let our emotions run high. I remember while I was presenting data to this group, I would get the occasional scoff when I would mention a positive for one party or a negative for the other. That was a little intimidating knowing that I had only been able to participate in one election before 2012 and the people I was talking to might have had 10-12 elections under their belt. It still didn’t change the data.

Here I am twelve years later advising over 150 households myself. Election years still give clients a worrisome feeling. Three elections later and the data I presented then still holds true today. Election years may have a little more volatility, but it is usually a blip on the radar when thinking of your long-term plans for saving, investing, and retiring. Don’t let a little noise and chatter on the nightly news (or Facebook, X, Instagram, etc.) derail you or stop you from just living your life. Control the things you can control. And, as if you needed a reminder, go vote.

Source: Bloomberg Finance L.P. Data as of December 31, 2023. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
Source: Bloomberg Finance L.P. Analysis as of January 18, 2024. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
Sources: Federal Reserve, St. Louis Fed, Haver Analytics. Data uses the effective Fed funds rate from St. Louis Fed for 1954-1968 and the Fed target policy range from 1972-2020. Analysis is as of January 18, 2023. Data rounded to nearest 12.5bps.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.