Election Years And The Markets
Webb Financial Group
The election year is in full swing, bringing with it the usual drama. We all know someone who insists they will sell everything and go to cash if a certain candidate wins the election. The truth is, letting politics drive our investment decisions can be detrimental. This demonstrates the importance of a financial professional — they can help remove emotion from investment decisions. Below is an examination of past presidential cycles and their implications for investing. Every four years, the convergence of politics and finance seems more pronounced, leading many to make decisions they later regret. Amid all the drama and political uncertainty with an election right around the corner, what does this mean for the markets moving forward? Please view the three charts below to offer more perspective.
Using the S&P 500 Index as a market gauge, consider this: if you only invested when a Republican was president and went to cash when a Democrat was in office, your $10,000 would have grown to just $83,360.22 by the end of Quarter 1 2024. Conversely, if you only invested during Democratic presi-dencies, your $10,000 would have grown to $414,703.12. However, if you ignored political factors entirely and stayed invested throughout, your $10,000 would be worth an astonishing $3.46 million by the end of Quarter 1 2024! This illustrates the importance of maintaining a long-term, non-partisan investment strategy.
An analysis of the makeup of the presidency and Congress since World War II reveals that the stock market has performed positively on average, regardless of the political mix. Surprisingly, the best average performance has occurred with a Democratic president and a Republican Congress, although that result might be due to the relatively small sample of years when that’s happened. Contrary to what either party might believe, full control by one party has not yielded the best returns. In fact, some of the lowest average returns come from scenarios where one party has a complete sweep: 13.9% for a Democratic sweep and 10.7% for a Republican sweep. This suggests that a balanced political landscape may be more conducive to market growth.
The reality is that the market grows over time because companies consistently innovate, create, and drive increasing profits. It’s easy to let politics cloud our judgement, but history has shown that regardless of who is President or what policies are enacted, entrepreneurs and companies find ways to adapt and thrive despite the rules. Innovation and creativity are the true engines of market growth over time.