Guide to Market Volatility During Elections
Understanding Market Behavior During Election Periods
Navigating the financial landscape during election months can often feel uncertain. With the media focusing on potential political shifts and their expected market impacts, investors might be tempted to adjust their strategies based on the outcomes. However, historical data and market analyses suggest a different approach—one grounded in long-term planning rather than reactionary moves.
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The Market and U.S. Presidential Elections
This next graph illustrates the hypothetical growth of $1 invested in the S&P 500 Index from 1926 to 2023, highlighting the long-term upward trend in the market despite political changes. The graph shows that $1 invested in 1926 would have grown exponentially over nearly a century, regardless of the various political administrations in power.
By color-coding presidential terms by party, the graph demonstrates that while the market has experienced periods of volatility, the overall trend has remained positive. This growth has been driven more by the performance of the companies within the index than by the political party in power, underscoring the resilience of the stock market over time and suggesting that long-term investors have been rewarded regardless of which party controls the presidency.
The Market and Control of U.S. Congress
The final graph examines the correlation between political control of Congress and market performance, tracking the growth of $1 invested in the S&P 500 Index from 1926 to 2023. It uses color coding to differentiate periods of Republican, Democratic, and mixed control of Congress, revealing that the market has generally trended higher regardless of which party was in power.
This data suggests that broader economic factors and the performance of individual companies have a greater influence on market performance than the political party controlling Congress. Ultimately, this graph reinforces the idea that long-term investment success is more dependent on the fundamentals of the market and the economy than on political control.
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Annualized Returns During U.S. Presidential Terms
This chart provides an overview of how different presidential administrations have impacted market performance from March 1929 to December 2023. By comparing the annualized returns of the S&P 500 Index during the terms of various U.S. Presidents, the chart reveals that, on average, the market has provided a positive long-term return regardless of the political party in office.
This data underscores that while presidential policies do influence market performance, returns are shaped by a broader array of factors, making it challenging to predict market movements based solely on which party is in power.
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Returns During and After U.S. Election Years
This bar chart compares the average returns of the S&P 500 Index during and after U.S. election years from 1929 to 2023, offering a clear view of how returns have varied depending on the election. On average, the chart shows a return of 11.57% during election years, with the subsequent year averaging 10.67%. However, returns can vary significantly based on the specific election year.
For example, the year following the 2008 election (Obama vs. McCain) saw a significant positive return, while the 1936 election (Roosevelt vs. Landon) experienced negative returns both during and after the election year. This data illustrates that while some election years have yielded strong returns, others have been more volatile, reinforcing the importance of maintaining a long-term investment strategy rather than making reactionary decisions based on election outcomes.
Bond Market Performance During and After Election Years
The bond market’s response to election years is a critical consideration for investors. The "Returns During and After U.S. Election Years" chart for the Bloomberg U.S. Aggregate Bond Index provides insights into bond performance during and after election years from 1976 to 2023. On average, bond returns during election years have been 6.84%, with the subsequent year showing a slightly higher average return of 7.33%. However, the chart also reveals significant variations in returns. For instance, the bond market experienced a substantial positive return following the 1984 election (Reagan vs. Mondale), while the 1980 election (Reagan vs. Carter) saw a negative return during the election year, followed by a positive return the next year. These patterns suggest that bond market performance, like the stock market, can be unpredictable during election years, with outcomes varying widely depending on the specific election and broader economic conditions.
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How U.S. Stocks Have Behaved in an Election Month
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This graph highlights the performance of the S&P 500 Index from January 1926 to December 2023, showing how the market has historically responded during election months compared to non-election periods. Interestingly, the data reveals no consistent pattern of behavior based on election outcomes, regardless of whether a Democrat or Republican wins the presidency. This underscores the importance of maintaining a steady investment strategy, even in the face of potential market volatility during election times.
The Power of Controlling your Emotions and Staying Disciplined Through the Political Season
In summary, while elections and shifts in political power can create short-term market volatility, historical data consistently demonstrate that long-term investment strategies are far more effective than reactionary decisions based on political outcomes. Whether examining stock or bond market performance, the evidence shows that markets tend to grow over time, driven by the underlying strength of companies and broader economic factors rather than the party in power. By maintaining a long-term perspective and focusing on the fundamentals, investors can navigate election cycles with confidence, knowing that disciplined investing has historically been rewarded regardless of political changes.
“No matter who comes to power, focus on your long-term goals.”
— Gabriel Shahin
Speak with a CFP® Today
If you're concerned about market volatility, especially during election cycles, it's essential to have a solid, long-term investment strategy in place. At Falcon Wealth Planning, our team of Certified Financial Planner™ professionals is here to help you navigate these uncertain times with confidence. We offer free financial assessments to help you understand your current financial situation and develop a plan tailored to your goals. Don't let short-term political changes dictate your financial future—speak with one of our experts today to ensure your investments are aligned with a strategy built for long-term success.
