Shane Tenny, CFP®, discusses the unexpected turns the presidential election cycle has recently taken - from the near-assassination attempt on Donald Trump to Joe Biden's withdrawal from the race - with uncertainty seeming to be the only constant.
Naturally, these events have left many investors wondering: How will this impact the markets and my portfolio? Dive into the data and separate fact from fiction when it comes to election-year investing.
Transcript:
[00:00:02.280 --> 00:00:23.669] Hi, everyone Shane Tenney here, managing partner at Spaugh Dameron Tenny coming to you at the midpoint of 2024. And in light of the news over the last two weeks regarding the Presidential election cycle, I just have to come and record some thoughts around what has happened and put in context, some thoughts around a couple of key questions we've been hearing.
[00:00:23.880 --> 00:00:39.250] As you know, in the last couple of weeks, we've seen the near assassination of Donald Trump. We've also received the announcement of Joe Biden withdrawing from reelection and uncertainty over who will be taking his place.
[00:00:40.020 --> 00:01:05.139] In light of this information, we've been hearing a lot of questions from clients and investors around the impact on investment markets and their portfolios. And so, I thought I would take a minute and share with you just a couple thoughts around what has been happening from an investment standpoint year to date. And the impact that presidential election cycles have historically had on the investment market and returns the second half of the year.
[00:01:05.450 --> 00:01:09.430] So, with that said, Let me start with our 1st chart for the day.
[00:01:09.530 --> 00:01:38.850] I want to start by just illustrating what you probably well know, and that is that it has been an extraordinary year for investment markets, as you can see down in the bottom left the S&P 500, which is one of the broader metrics for the U.S. Economy is up over 15% year-to-date. It's return combined with last year more than eclipses the bear market of 2022, leaving us with an annualized return over the last 3 years in the S&P of 10%.
[00:01:39.400 --> 00:01:57.920] A lot of that return has been driven by the magnificent 7. And so, the technology stocks of Microsoft, Apple, Nvidia, Google, Amazon, Facebook, and Tesla have been significant in the returns and are up over 36% year-to-date.
[00:01:59.140 --> 00:02:22.020] With this really strong performance, combined with a lack of almost any volatility in the 1st half of the year (we didn't have one day where the market was down more than 2%), it's leading some people to wonder if, now, given the uncertainty in the Presidential election cycle, it's a good time to withdraw from the equity markets.
[00:02:22.060 --> 00:02:32.949] We're hearing questions about whether or not election years are good times to even get out, and if we need to be concerned, based on who wins.
[00:02:33.030 --> 00:02:44.620] Folks that lean right are feeling like it's only going to be a good year if a Republican gets elected, and those who lean left feel like the only fiscally responsible vote is for a Democrat.
[00:02:45.410 --> 00:03:09.929] Well, we've pulled together some data, historically speaking, on these, and it shows quite a different story. In fact, I'll start here with the last 11 reelection years. A re-election year different than a new election year. So, for example, in 2,020, that was the reelection year for Donald Trump, and the S&P 500 ended up that year, 18%.
[00:03:10.320 --> 00:03:18.450] The reelection year of 1996 was Bill Clinton's, and the equity markets as measured by the S&P 500 were up 23%.
[00:03:18.890 --> 00:03:27.909] You can see over the last 75 years, 11 reelection cycles, the average return of the S&P is up 16%.
[00:03:28.310 --> 00:03:37.060] And so, it is definitely not a fact that exiting equity markets during an election year is necessary or profitable.
[00:03:37.850 --> 00:03:46.169] But what about the second part of the question—does it make a difference whether it’s a Democrat or a Republican up for reelection?
[00:03:46.350 --> 00:03:56.260] When we overlay that information as illustrated by the red and blue bars, you can also see there's no real significant correlation.
[00:03:56.430 --> 00:04:10.249] In some years, when Democrats are up for reelection. Like Bill Clinton's, we see very high returns, and in years like Ronald Reagan's reelection year, in 1984, we see lower returns. But in all instances, they've been positive.
[00:04:11.240 --> 00:04:19.970] And so, lest you be concerned about the Presidential election cycle on your portfolio - Rest easy, there is no correlation.
[00:04:20.120 --> 00:04:35.079] Remember, your portfolio is invested in real companies generating real profits, navigating the landscape of interest rates, immigration, international turmoil, and election cycles as best they can for the benefit of their shareholders.
[00:04:35.290 --> 00:04:48.909] and while the decision you make in November regarding your vote is an important one to exercise in a republic democracy like America. It is not one that has a direct impact on your portfolio.
[00:04:49.440 --> 00:04:56.020] I hope this was helpful, educational, and as always, if you have any questions, don't hesitate to reach out.
