Election Year Investing: Separating Fact From Fiction

As we find ourselves at the midpoint of 2024, the presidential election cycle has taken some unexpected turns. From the near-assassination attempt on Donald Trump to Joe Biden's withdrawal from the race, uncertainty seems to be the only constant.

Naturally, these events have left many investors wondering: How will this impact the markets and my portfolio?

Let's dive into the data and separate fact from fiction when it comes to election-year investing.

Keep reading or watch the midyear update video.

A Banner Year for Markets (So Far)

Despite the political turbulence, 2024 has been an extraordinary year for investment markets:

• The S&P 500 is up over 15% year-to-date
• Combined with last year's gains, we've more than recovered from the 2022 bear market
• The 3-year annualized return for the S&P 500 stands at an impressive 10%

Much of this growth has been driven by the "Magnificent 7" tech stocks (Microsoft, Apple, NVIDIA, Google (Alphabet), Amazon, Facebook (Meta), and Tesla), which are up a staggering 36% year-to-date.

Source: Morningstar as of 6/3024. U.S. Stocks represented by the S&P 500 TRI Index. International Index represented by the MSCI EAFE NR Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot directly invest in the index.

Election Year Jitters: Should You Stay Invested?

With such strong performance and little volatility in the first half of the year, some investors are wondering if now is the time to exit the market given the election uncertainty. Others worry that market performance hinges on which party wins the White House.

The data tells a different story.

Historical Performance in Re-Election Years

Looking at the last 11 re-election years (spanning 75 years), we see:

• The average return of the S&P 500 during re-election years is 16%
• There's no significant correlation between market performance and which party is up for re-election
  • Examples:
    • 2020 (Trump re-election year): S&P 500 up 18%
    • 1996 (Clinton re-election year): S&P 500 up 23%

Key Takeaways for Investors

1. Elections Don't Dictate Market Performance: There's no historical evidence suggesting that exiting equity markets during an election year is necessary or profitable.
2. Party Affiliation Doesn't Matter: Whether a Democrat or Republican is up for re-election has shown no consistent impact on market returns.
3. Focus on Fundamentals: Your portfolio is invested in real companies generating real profits. These businesses navigate various challenges — including election cycles — to benefit their shareholders.
4. Exercise Your Right to Vote: While your vote in November is crucial for our democracy, it doesn't have a direct impact on your investment portfolio.

The Bottom Line

As we navigate the remainder of this election year, remember that market performance is driven by a complex set of factors beyond any single election or politician.

Stay focused on your long-term investment goals and avoid making drastic changes based solely on political events. Your vote matters for the country, but when it comes to your portfolio, it's the underlying strength of the businesses you're invested in that truly counts.

If you have additional questions about your specific financial situation, please don’t hesitate to contact your own advisor.

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