As we approach the end of the first quarter of 2024, the market has managed to continue to climb, even with headwinds such as geopolitical conflicts and elevated interest rates still prevalent features in the daily newsfeed. Although investors remain concerned about prices at the grocery store, one worry overrides all others: the election. According to a recent investor survey by Janus Henderson, over 78% of investors cite the election as their biggest worry in 2024. 

So, what do we know so far about the election? Even though we are in the early stages of the election cycle, now that Super Tuesday is over it appears a rematch between Biden and Trump is a highly probable outcome. 

The question is, is it important—at least from an investment perspective—who wins the election? A review of historical data indicates that there is limited correlation between national election outcomes and capital market performance. Even though election results can impact government policy, laws and foreign relations, data studied over the past 85 years indicate there is minimal impact on financial market performance based on possible election outcomes. 

The average return of the S&P 500 Index between 1937 and 2022 shows that election-year returns have on average been positive for portfolios. Specifically, the average return from 1937 to 2022 of the S&P 500 was 11.9%. In non-election years, it was 12.5%, and in election years it was 9.9%.* So, while election years have been less accretive to portfolio returns, they still have historically been positive. 

Conversely, economic and inflation trends show stronger and more consistent effects on market returns than election outcomes. Rising growth and falling inflation are a combination that has often led to returns above long-term averages while the opposite often corresponds to below-average market returns. Earnings trends are a more reliable indicator of market returns than presidential elections. 

This does not mean there will never be a negative impact on the markets due to a change in leadership which cause changes in policy (i.e. taxes). But the actual election is unlikely to create anything more than short-term volatility and should not impact long-term investment strategies. 

The 24-hour news and social media torrents have been significant contributors to the rise of investor anxiety over the past several election cycles. Combined with financial concerns, this formula makes emotions run high and impact investors’ moods. This can lead to poor decisions which can impact long-term financial goals. 

It is important to consider your time horizon in the allocation of your investment portfolio. If you are pre-retirement or in the early stages of retirement, you could have a 20-30 year time horizon for your investments, and time should help smooth the volatility inherent in capital markets. Review your allocation to ensure it is appropriate for your long-term goals, rebalance if necessary, and stick to your strategy. 

However, if you are in the later stages of retirement, a thorough review of your allocation—and some adjustments—could ease some of your anxiety. A condensed time horizon means less time to recover from market downturns. Perhaps a less risky portfolio, with a higher amount in cash or bonds, could provide greater peace of mind. A review from a financial professional can help you see the impact of this on your overall plan. 

Besides the financial impact of the election, there is also an emotional impact that cannot be discounted. Statistics show that investor sentiment directly correlates with whether the side they prefer won or not. Since it is such a polarizing event, full of often nasty rhetoric, it is important to protect yourself from becoming overwhelmed from the news cycle. Stay informed, but don’t let the news rule your day. It is a long cycle, and your mental-and physical health are more important than the outcome of one election. 

No matter what happens, it is best to stick to your financial plan. If it needs updating, this is a great time to do it, as you may not be able to control the election results (besides voting), but you can control your own financial picture. This election year will eventually be over, but decisions you make regarding your finances should be based on your goals, not the results of the election. As always, our team at CNB Wealth Management is here to answer your questions and help you to meet all your financial goals.