How will the election cycle affect my investments?

February 06, 2024

In the ever-evolving landscape of financial markets, elections stand as pivotal events, sending ripples through investor sentiment and market dynamics.  As we approach the ballot box, it's natural to wonder: how do elections truly impact the stock market, and what lessons can we glean from historical patterns?  Or, are there really any significant lessons or is it just fairly random?  To help, we’ve highlighted some key insights to unravel the connection between elections and investments.

First, the data seems to discount Presidential elections as an important driver in market returns.  Instead, historical data points more towards economic and inflationary trends having a stronger and more consistent bearing on market returns in election years.  The election itself is often just "noise" in the background, and can have more of an impact on investor sentiment rather than actually changing economic or inflation trends.

The data also seems to contradict conventional wisdom that a Republican or Democratic “sweep” of the presidency and Congress will provide the most disruption (positive or negative) in the markets.  Historically there has actually not been a statistically significant relationship between market performance and one party having total "control" of both the White House and Congress.  See the following chart for information on this dynamic.

While we do not see anything "actionable" about the general election itself, the winning party can have an effect on certain investment sectors and industries.  Proposed policies, regulations and overall party platform is something that should be considered.  Specifically, we will be paying attention to platform ideas that are talked about and leaked regarding:

-  Individual and corporate tax policies
-  Approach towards SALT deductions
-  Regulatory tightening or loosening
-  Spending priorities
-  Immigration policy
-  Trade policy
-  Approach towards existing geopolitical conflicts

Our strong opinion on this is to not get overly consumed with the election as it relates to your portfolio.  Instead, practice the key portfolio drivers of remaining well diversified, have ample cash reserves for upcoming expenses, and rebalance the portfolio to take advantage of market movements.

Should you have any questions at all, don't hesitate to ask.  We’re here to help you navigate every turn in your financial journey.