Presidential Election Commentary

Traditions Wealth Advisors
Greysen Golgert/Brien L. Smith CFP®
Economic Analyst Intern/Chief Investment Officer
July 28, 2024​                   

This month has seen events occur in the US political sphere that have changed the election cycle from relatively predictable to wildly unpredictable in a short amount of time. In the past week we have seen an ever-changing slew of predictions, polls, and headlines that prove this race has been flipped on its head. With that being said, history has repeatedly shown that political turnover has little to no effect on the overall performance of a diversified investment portfolio. There will likely be short-term ripples in the months leading up to the race, but these occurred time and time again as Election Day approached during previous cycles. It is only natural for investors to get the jitters when either candidate proposes a policy change or espouses a desired geopolitical stance, but the long-run reality is that the impact of these ripples fades away in the wake of an election year. In fact, since 1950, stocks have averaged 9.1% returns during an election year and 8.3% returns in the year after an election. Regardless of who wins the presidency or which party controls Congress, financial markets will not be affected by the various potential outcomes. As seen below, the average annual S&P 500 returns from 1933-2022 have been positive under each partisan combination.

One of the common lines of thought when politics intersects with investment is that policy change (or continuity) will have a significant impact on individual sectors. While it is certainly true that policy can and will affect certain sectors in diverse ways, betting on the perceived effect of policy positions at this stage is extremely risky. Even if it is possible to anticipate the effect of each party’s current policy objectives, making investment decisions now based off of that is a gamble within a gamble. First, elections are not predictable, and this one recently became less predictable by a significant margin. Second, party policy on a variety of subjects can and often does shift while candidates are on the campaign trail or elected to office. Third, it can be extremely difficult for elected officials to implement policy when they take office, and thus certain policy goals take priority over others. Also, sector performance in election years has not produced much in the way of discernible patterns. Betting on sector returns relative to political outcomes can backfire in many ways, but the safe bet that produces consistent returns is to stick with the fundamentals and a consistent investment strategy.

Investors may also be concerned about the potential for newly elected officials to completely alter the fabric of the economy. Worries especially tend to arise when a single party gains control of Congress and the presidency in one fell swoop. In truth, sweeps have happened before and they are going to happen again, but the makeup of our economy has remained consistent for decades. In past years where one party dominated the legislative and executive branches of our government, the percentage of bills­ that are defined as having real-world impact on spending and policy has not risen when compared to years in which the government was divided. The quasi-public Federal Reserve and its monetary policy have a far more relevant impact than our elected officials do.

​Whatever the political situation come November, this US economy will continue chugging along. Apple, NVIDIA, Amazon, and hundreds of other American companies will continue to innovate and grow. In other news, progress on the inflation front and a higher than expected GDP growth reading for Q2 (2.8%) are positive signs for the Fed, the economy, and investors as they provide more optimism for a soft landing.

Sources:
https://www.invesco.com/us/en/insights/market-performance-2024-presidential-election.html
https://www.fountainheadam.com/wp-content/uploads/2024/06/Market-Commentary-2024.5-1.pdf
https://www.fidelity.com/learning-center/trading-investing/election-market-impact