Elections and Investing: Separating Fact from Fiction

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Elections and Investing: Separating Fact from Fiction

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October 4, 2024

As the heated 2024 U.S. presidential race between Democratic nominee Kamala Harris and Republican nominee Donald Trump nears its conclusion, many investors are wondering how the election outcome might affect their portfolios. Despite the intense rhetoric and daily news coverage, historical data suggests that elections generally have minimal impact on stock market performance in the medium to long term. Here are five key points investors should keep in mind:

1. Economic trends matter more than election results

While investors may closely monitor election outcomes, economic factors such as growth, corporate earnings, and inflation tend to have a stronger and more consistent relationship with market returns. A study by Vanguard found that rising economic growth and falling inflation have historically been associated with above-average returns, while falling growth and rising inflation corresponded to positive but below-average returns¹.

2. Markets have risen in most election years

Since 1950, U.S. stocks have averaged returns of 9.1% in election years, indicating that the election cycle is usually not the dominant theme driving market performance². Attempting to time investments based on anticipated election results could be risky and may backfire.

3. Divided government has often led to strong returns

Contrary to popular belief, a single-party sweep of the White House and Congress has not historically had a statistically significant relationship with market performance. In fact, research by Charles Schwab afound that divided government scenarios have often been associated with stronger returns, possibly due to reduced policy uncertainty³. U.S. Bank Asset Management Group has found similar findings that support this, see table below⁷.

Source: U.S. Bank Asset Management Group.7

4. Betting on specific sectors is highly risky

While certain policy changes may affect individual sectors or industries, attempting to predict and capitalize on these impacts is extremely difficult. Historical data shows few consistent patterns in sector performance during election years, making sector bets based on partisan outcomes a risky strategy⁴.

5. Focus on fundamentals and stick to your plan

Regardless of the election outcome, investors are generally best served by adopting a thoughtful, long-term financial plan aligned with their goals and risk tolerance. Rather than reacting to political headlines, focus on economic fundamentals and maintain a diversified portfolio⁵. Consult with a trusted financial advisor to review your portfolio and ensure it remains aligned with your objectives.

In conclusion, while election news may generate short-term market volatility, long-term returns are primarily driven by economic and market fundamentals. As an investor, it's essential to maintain perspective, avoid making emotionally-driven decisions, and stick to your well-crafted financial plan. By focusing on what you can control and tuning out the political noise, you'll be better positioned to achieve your financial goals over time, regardless of who occupies the White House come January 2025.

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If you're looking for a partner to help you navigate through the intricacies of investment management and to ensure your financial concerns are all addressed, consider reaching out to us. Let Bayntree Wealth Advisors help you realize an investment strategy as unique as you are, considering your risk tolerance, and preparing you for the years ahead. Contact our financial advisors in Arizona today to start your comprehensive retirement planning journey.

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Investment advice is offered through Bayntree Wealth Advisors, LLC, a registered investment adviser. Insurance and annuity products are offered separately through Bayntree Planning Group, LLC. Bayntree does not provide, and no statement contained herein shall constitute, tax or legal advice. You should consult a tax or legal professional on any such matters.

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