It’s common for there to be a lot of uncertainty in an election year, especially when it comes to the stock market. Many people have concerns over how the results of the election will impact the stock market and their investments, but the truth is, the election may not have as big of an impact as you think.
How will Stock Markets be Impacted by the Election?
While we can’t predict the future, we can look back on historical examples.
Looking back on the 2016 election, some thought the markets would crash if Donald Trump won. The S&P 500 went on to gain about 36% from November of 2016 to January of 2018.
Looking at the 2020 election, some thought the markets would tank if Joe Biden won. From November of 2020 to January of 2022 the market gained 49%.
These are just the most recent examples. There are years of elections and stock market history that are similar to these two examples.
Of course, it is common that people think, “this time is different,” and maybe it is. But we can look back on history to see what it shows us. While history doesn’t guarantee results, we can gather that who is president has little long-term impact on market performance.
At the end of the day, the markets do not favor democrat or republican president, and do not care as much about politics as individual investors do.
What About Policy and The Stock Market?
Yes, the policies a President introduces can influence economic growth and the stock market. Sometimes these polies lift the economy. Other times, they don’t.
For example:
President Thomas Jefferson embargoed all trade with England and France, preventing U.S. ships from doing business with other countries. While he had sound reasons for pursuing the policy, “It decimated the economy…As many as half of the working men in the New England coastal communities were unemployed. Poor houses overflowed, banks failed,” reported WBUR.
The embargo was not popular. Eventually, American merchants found loopholes that allowed them to trade with Canada and Spanish Florida. Smuggling also increased.
President Jimmy Carter faced an embargo—the Arab oil embargo of 1973. Demand for gasoline far outstripped supply in the United States, and Americans waited in long lines to fill their cars’ gas tanks. In response, the President developed energy conservation strategies.
“President Carter signed energy legislation that created the U.S. Department of Energy, provided incentives for renewables and coal, deregulated oil and natural gas prices, and banned new power plants from using gas or oil. Some of these policies have had a lasting effect. Others drew criticism and were ultimately repealed,” stated historian Jay Hakes on a Center for Global Energy Policy podcast at Columbia University.
While, there is usually a difference of opinion when new policies are implemented, the outcomes are usually difficult to predict.
Regardless of policy, one thing remains true for companies – they will always fight to make money. Companies are responsible to their shareholders, not a particular political party. They will do whatever they can as a company to make money, regardless of tax policy, economic conditions, etc. That’s what the difference is.
Ultimately what it comes down to is the market favors a divided government. If you have a majority one way or the other, laws can fly through and create a lot of change. The markets like things to be a little more predictable.
Navigating Market Volatility During Election Years
Volatility in the stock market is normal. The day-to-day ebbs and flows are not as important as the long-term performance. Let’s consider history again – the markets have finished positive 33 of the last 44 years. Which means, if you stay invested, long-term performance will likely work out in your favor.
What Can You Do?
Look beyond the headlines. These can be emotional triggers and cause unnecessary stress. Keep your focus on your long-term goals and not the day-to-day ups and downs.
Act now. Meet with a fiduciary financial advisor to review your plan. At Kowal Investment Group, we help our clients prepare for every outcome by running their plans through ‘what if’ scenarios. Whether it’s higher inflation, higher taxes, or unexpected life events, we will plan for it.
Schedule a complementary retirement review with one of our fiduciary advisors!
Sources:
https://www.washingtonpost.com/opinions/2024/10/10/economy-great-year-election/
https://www.wbur.org/radioboston/2012/06/15/new-england-succession
https://mises.org/mises-daily/jeffersons-disastrous-embargo
https://www.energypolicy.columbia.edu/jimmy-carters-energy-policy-legacy/
Disclosures:
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it
Any opinions are those of Kowal Investment Group. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
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