3 Myths and 3 Truths: Elections and Markets

What do presidential elections mean for your portfolio?

Should you change your investing strategy based on who wins?

Elections bring a lot of noise, and we wanted to dispel some market myths around this election and provide some truths.

Myth #1: Elections usually bring big market swings.

You would think elections cause major market shifts (given all the politicking and intense emotions).

However, history shows that elections historically don't influence market performance as much as the economy does.

Growth, inflation, corporate profits, and other business and economic trends usually have a stronger effect on the stock market.

The president and Congress impact markets through the laws they pass and decisions they make, which are more powerful influences than elections alone.

Market swings that do happen during and after an election are usually short-term. Companies figure out who is going to be in charge and then the dust settles and go about their business.

Myth #2: Markets perform better with one party in power.

You might have heard that markets perform better under Democrats or Republicans.

History shows that markets have performed well under both parties.

Take a look at the chart below from Dimensional Fund Advisors. The average stock market return for a president dating back to 1929 is 9.5%.

Stocks have historically performed best under a “divided” government when neither party controls both Congress and the White House.

Myth #3: The “election cycle" means I should change my investment strategy.

You might have heard of the so-called “election cycle,” where markets are supposed to follow a consistent pattern every four years.

The chart below shows S&P 500 performance since 1950.

You can see that there isn't a consistent pattern to performance, with both negative and positive years over time.

However, on average, markets have been generally positive each of the four years.

You can see to expect to see both large positive and negative movements in the market regardless of who is president, but at the end of it all it is historically been positive.

Emotions are high, and changing your strategy ahead of a contested election can be tempting, but it's not a good idea.

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Truth #1: Elections are just one factor affecting markets over the next few weeks, months, and years

We can expect volatility around the election, but traders are also analyzing a lot of other factors:

The Federal Reserve's path to rate cuts
Inflation and economic data
Geopolitics and conflicts overseas

And much more.

Truth #2: Tax laws and regulatory changes may impact markets in 2024 and 2025.

With many provisions of the Tax Cut & Jobs Act (TCJA) scheduled to expire at the end of 2025, tax policies are something we’re monitoring closely.3

International trade issues may also influence markets if tariffs increase or supply chain problems continue.

Bottom line: Elections bring uncertainty, so we're watching carefully.

We don’t know how the election results will play out over the coming months and years.

Truth #3: Consistently Investing and staying investing pays off

If you can ignore the noise, news, and nonsense and just keep saving and investing consistently if will pay off in the end.

It can be exhausting when all the news stations, radio shows, social media, newspapers, etc. are all telling you a different things, but rest assured regardless of who is president consistently saving and investing is the way to go.

If you have worries and anxieties about the election and market you aren't alone! If you want someone in your corner to serve as your financial accountability partner, your financial coach, or your trusted advisor then Let's Talk.

All the best,

Your Wela Financial Advisory Team

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‍Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

Chart #2 Source: https://www.fidelity.com/learning-center/trading-investing/election-market-impact

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax professional.

The S&P 500 is an unmanaged composite index considered to be representative of the U.S. stock market in general. Past performance is no guarantee of future results. Indices are unmanaged, do not incur fees, costs, and expenses, and cannot be invested into directly. For illustrative purposes only. Past performance is no guarantee of future results.

Brent Forrest & Associates, LLC. dba Wela Financial Advisory (Wela) is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.