The 2024 US presidential election season is in full swing and political discourse is everywhere. For many investors, the election and its potential impact on the economy, financial markets, and portfolio risk is a significant concern.

Regardless of the election outcome, investors’ long-term plans shouldn’t be disrupted by short-term political promises. Below are common risks and concerns typical to election years, how they’ve historically impacted portfolio returns, and what they can mean for today’s investors.

Portfolio Returns: Election Year vs. Non-Election Year

Do election year portfolio returns underperform non-election years? This is a frequently asked question and common misconception.

Typically, portfolio returns don’t differ much in election years. There may be more volatility intra-year, but annual returns are in line with long-term averages. In fact, since the index’s inception in 1957, election year S&P 500 annual returns have been positive 83% of the time while a positive year occurs approximately 75% of the time overall over the same timeframe.

Does this mean investors should be more bullish in an election year? Probably not. Portfolios should be viewed through a long-term lens with time horizon, financial objectives and risk tolerance playing major factors.

Election Impact on Markets

Traditionally, elections have a minimal effect on the markets. During campaign season, policies, platforms, and promises are presented as if they will happen on inauguration day. The reality is high-impact policy proposals often depend on Congress, and adoption is more likely with a single party in control of the White House and the legislature.

Even with a majority in one or both houses of Congress, market-moving policies can still confront challenges and bottlenecks. Change is slow. Some campaign promises are broken and many are never revisited post-election.

The Economic Backdrop Matters Most

Economic trends at election time, like inflation, have statistically greater effect on returns than election results. For example:

• The 2000 dot com bubble
• The 2008 global financial crisis
• The 2020 COVID-19 pandemic

These were election years when markets considered the economic backdrop as its primary driver and not election results. All three years had increased volatility over the historical average.

Two election years, 2000 and 2008, are unique as two of only a handful of election years with overall negative returns. Conditions were already present in the economy and financial systems drove markets down before and after the election dust settled.

The Fed’s Election Year Actions

The Fed has made moves in election years but like the markets, historical data shows Fed actions during election years aren’t driven by fear of political blowback but by current economic trends.

Portfolio Implications

Individual financial plans typically span multiple presidential elections, and the impact of any individual election is unlikely to sway the core goals within those plans. However, elections and the resulting policy agendas and outcomes at all levels of the government can often result in conversations around tactical adjustments within the plan.

Portfolio planning, by nature, is ongoing. Any time there’s a substantial change in an investor’s individual or family situation or in the external environment, the portfolio plan should be reviewed, and adjustments made if needed.

During an election year, it’s prudent to stay alert to the risks around elections and political turmoil, but investment decisions shouldn’t be driven by the election or political forces. Stay focused on long-term goals and be alert for emerging opportunities.

We’re Here to Help

If you’d like help navigating the complex investment landscape and create a portfolio that can weather business cycles and election years, please contact your Moss Adams professional.

Additional Resources

• Private Clients Practice
• Wealth Management Services