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Our Key Takeaway About the Election and the Stock Market: Relax.

Our Key Takeaway About the Election and the Stock Market: Relax.

February 09, 2024

If you are worried about how the election may affect your portfolio, you’re not alone. But you may not be right.

A whopping 61% of respondents to an Investopedia survey indicate that they are worried about how the election may affect their portfolio. This number is surprising to those of us who study the relationship between elections and financial markets regularly because, well, there is no documented connection. But it is not surprising when you consider how evenly divided our country is politically. Democrats are worried that Republicans will be elected, and Republicans are worried that Democrats will be elected. And Independents are just worried.

The charts below from JP Morgan capture the annual and cumulative Real GDP (measuring economic output) and S&P 500 Price Index (measuring the returns of the top 500 US companies) since 1947. While Democrats fare better with GDP, and Republicans fare better with S&P returns, the biggest takeaway is that both parties have produced very favorable results for Americans over many decades.

Here are a few key themes for 2024:

  • As we write about in Risks and Opportunities, our quarterly market report, the big story in the financial markets this year is the Fed’s December announcement that they would be dropping interest rates three times in 2024. The knock-on effects of decreasing rates will be much more significant to the economy and financial markets than the election.

  • Financial markets really don’t like uncertainty, and they really like certainty. By definition, there will be uncertainty leading up to the election and certainty after it. We can expect potentially higher volatility and then – no matter who wins - a shoring up as the stock and bond markets digest what is likely to come of the election results. For this reason, market returns tend to be more muted in the first three quarters of an election year (1.9)%, with a sizable jump in the fourth quarter (3.1%).

  • History tells us that the most common form of US government is divided, and – thankfully – that configuration produces the best results over the past seven decades. First Trust documents that the historical returns are better under each party when they don’t sweep the White House, Senate, and House. In the end, the data, reinforces that neither party has an outsized effect on the returns of the stock market.

So what influence will the election have on our decisions at BFS Advisory Group? Prior to the election, virtually none, assuming that the candidates remain the same as expected today: Biden and Trump. Immediately after the election, we will analyze where policy proposals under the new White House / Congress dynamics may provide investment opportunities. Examples of such legislation include the Affordable Care Act (Obama), Tax Cuts and Jobs Act (Trump), and the Inflation Reduction Act (Biden).

We know how emotional elections are in every country, and especially ours. We appreciate the passion that many of our clients have as they support their parties. Our role as fiduciary to our clients is to provide sound judgment in all environments, to identify the relevant facts that are likely to affect their financial outcomes, and to provide impartial advice they can trust to be in their best interest. We look forward to diving into the opportunities that may arise after the election.

Debra Brennan Tagg is a CERTIFIED FINANCIAL PLANNER™ Professional and the creator of the DBT360 Financial Plan, a proprietary program that helps her clients prioritize their goals, leverage their resources, and address their risks. She is the president of BFS Advisory Group and teaches the public and the financial services industry about the importance of values-based financial planning and investor educatio