I remember wondering a few months ago when election news would begin dominating the headlines. 2020 was so contentious, I found myself bracing for something similar in 2024. Things were fairly tame through the first six months of the year. Then July happened… An assassination attempt. A missing president. An incumbent eligible for another term suddenly dropping out of the race. We seem destined for another vitriolic election season, and the media (seemingly the only winners in election years these days) is sure to capitalize on the inflamed tensions across the country. It’s a matter of time before people begin worrying about their portfolios. Given the impending inevitable concerns, a few things you should know…
Here are the returns of $10,000 invested in the S&P 500 for three different investors since 1950. The first, a die-hard Republican who only invested when a Republican held the presidency. The second, a faithful Democrat, who only invested when a Democrat sat behind the Resolute Desk. Third, one who tuned out the noise and left his funds invested regardless of the political orientation of the president. The results… two disillusioned investors and one very happy one:[i]
Here is essentially the same information in a different chart:[ii]
The nice thing about the stock market is the long-term trend is up and to the right regardless of who sits in the Oval Office (or who controls Congress, or where tax rates are, or what trade policy looks like, or anything else for that matter). Not that the financial media will ever tell you that.
Hat tip to Ryan Detrick who compiled the following chart:[iii]
As you can see, since 1950 the fourth year of a president’s term (election year) has on average been a very good year for investors – positive over 83% of the time with an average return of 7.3%. Notably that fourth year includes 2008 – a year in which the S&P 500 fell 37%. But that drawdown had nothing to do with the ’08 presidential election. The market puked following bank failures and global credit markets drying up. Remove that year from the picture and election year returns look even better. It is tempting to draw the conclusion that presidential election years lead to solid returns in the stock market when the more accurate conclusion is the stock market is usually positive any given year and presidential elections are largely irrelevant to returns. There are billions, no, probably trillions, of variables that impact the stock market. Focusing on a singular variable – like an election – is a mistake.
Do not count me unconcerned. The political polarization knob is turned to eleven. I can feel it. You can feel it. We all can feel it. July of 2024 feels like one of the more consequential months in presidential politics historically. There will be an entire chapter in the history books dedicated to the events of this month. I am concerned about plenty of things related to politics.
But I am not concerned about the long-term prospects of my diversified stock portfolio. Or that of our clients (whose portfolios look the same as my own family’s – we eat our own cooking at Resolute Wealth Management). This is not an outlook on the next year or two. I have absolutely no idea where the market will be by election day or a year afterwards (and anyone who tells you they know is either a fool or a charlatan). We are concerned about the long run where, regardless of what plays out on the political stage, American companies will adapt and continue their relentless quest to generate profits and return value to their shareholders over the long term.
American history was one of my majors in college. That is a bit rare among financial advisors. It may strike one as irrelevant to my chosen profession. But it taught me one very important lesson for investors. Recall…
A small group of fed up, freedom loving revolutionaries picking a fight against the sole world empire in 1776…
A bitterly divided nation reeling after a bloody civil war and the assassination of its president in 1865…
A couple of farm boys from the University of Washington beating out Hitler’s men on their home turf in 1936…[iv]
A shocked nation listening by radio to President Roosevelt recount a day that will live in infamy…
A generation of victorious, traumatized young men returning from European and Pacific battlefields to build the greatest economy the world has ever seen.
Bell, Whitney, Edison, Ford, Tesla, Morgan, Carnegie, Rockefeller, Watson, the Wright brothers, Bezos, Jobs, Musk… A rich history of brilliant American innovators and risk takers pulling forward human progress…
A few generations transitioning the country from the Great Depression to the most powerful economic machine in human history…
Reagan’s command to tear down this wall…
The crowd chanting “U-S-A” after President Bush threw a perfect first pitch at Yankee stadium wearing an FDNY jacket in game 3 of the 2001 World Series…
The lesson is this:
Never, ever bet against America.
Sean Cawley, CFP®
Neither asset allocation nor diversification guarantee against investment loss. All investments and investment strategies involve risk, including loss of principal.
Content here is for illustrative and educational purposes only. It is not legal, tax, or individualized financial advice; nor is it a recommendation to buy, sell, or hold any specific security, or engage in any specific trading strategy. Results will vary. Past performance is no indication of future results or success. Market conditions change continuously.
This commentary reflects the personal opinions, viewpoints, and analyses of Resolute Wealth Management. It does not necessarily represent those of RFG Advisory, clients, or employees. This commentary should be regarded as a description of advisory services provided by Resolute Wealth Management or RFG Advisory, or performance returns of any client. The views reflected in the commentary are subject to change at any time without notice.
[i]How Do Presidential Elections Impact the Market? YCharts. 2024.
[ii]The Market and US Presidential Elections, Dimensional Fund Advisors. January 2024.
[iii]https://www.carsongroup.com/insights/blog/16-charts-and-tables-to-know-this-election-year/
[iv] Consider this a recommendation to read The Boys in the Boat by Daniel James Brown.