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Investing in a Presidential Election Year

Investing in a Presidential Election Year

March 26, 2024

As the presidential election race heats up, a common question on investors’ minds is, “How might the looming White House vote impact the markets?”

Some may wonder if they should tweak their portfolios or sit tight with uncertainty ahead. It’s a difficult question to answer.

From 1928 to 2020, the Standard & Poor’s 500 has posted positive results in 20 out of the 24 election years. The chart below gives us a bit of a history lesson. But it also should serve as a reminder that past performance does not guarantee future results.1

Stock Performance Outside of Election Years

Although election years have typically been positive for stocks, interestingly, the best year in a four-year presidential cycle has usually been the third year, followed by the fourth, then the second, and, finally, the first.1

Economists have theories about the reasons for this. They say that the first year of a term sees a recently elected president working to fulfill campaign promises, with the final two years being all about campaigning and trying to strengthen the economy before voters go to the polls.1

Although these theories may have some validity, they should only be one factor to consider when making investment decisions. There are too many other variables impacting the markets outside of politics. The Great Recession of 2008 and the COVID-19 pandemic of 2020 are examples of shocks to the economy that played a role in the election.

Do the Markets Care Who Wins the Presidency?

If the past is a prologue, it won’t matter much to the stock market whether the next president has an (R) or a (D) after their name.

What has mattered more to the markets in the three months after a new president and Congress have taken office was the makeup of the government, how it was divided between the two major parties and the extent of that division.2

As the table below shows, Democratic control of the White House and either Republican or split control of Congress corresponded with the most positive returns above the market’s long-term average. On the other hand, Republican control of the White House and Democratic or split control of Congress resulted in returns below the market’s long-term average.2

As mentioned before, it’s important to remember that past performance does not guarantee future results. The 2024 election may mirror historical averages or deviate from the trends.

 

The Influence of the Economy, Inflation

Understanding how election results have affected the stock market over time is interesting. Still, data suggest that economic and inflation trends tend to have a more consistent relationship with market performance than who wins in November.

Improving growth and falling inflation generally create a more encouraging economic environment. Focusing on these factors may be more meaningful when evaluating market performance.2

Sticking with Your Strategy

Although it might be tempting to use events like an election to influence an investment strategy, it may not be the best approach. So don’t let short-term occurrences like elections distract you.

The best strategy is to have a well-thought-out approach to investing, a diversified portfolio, and a mix of asset classes that reflect your goals, time horizon, and risk tolerance. Keep in mind, however, that asset allocation and diversification are approaches to help manage investment risk. They do not guarantee against investment loss.

We’re Here If You Have Questions

We’re here to help. If you are a current client and would like to discuss your strategy, please contact us anytime. If you are working with another financial professional and would like us to review your overall approach, don’t hesitate to contact us.



1 TheBalance.com, March 13, 2022. The S&P 500 Composite Index is an unmanaged index that is considered representative of the overall U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
2 USBank.com, 2024

Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy, investment strategy, and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. This should not be construed as specific investment, financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. The index and sector performance data appearing or referenced above has been compiled by the respective copyright holders, trademark holders, or publication/distribution right owners. Historical performance results for investment indexes or sectors represented are for illustrative purposes only and do not represent actual portfolio performance. The indexes or sectors represented generally do not reflect the deduction of transaction and custodial charges, or the deduction of an investment-management fee, which would decrease historical performance results. Investors cannot invest directly in an index. ACP makes no warranty, express or implied, for any decision taken by any party in reliance upon such index information.

 

The S&P 500 is the Standard & Poor’s index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it also serves as a proxy for the total market. The Dow Jones is a price-weighted market index that tracks 30 large, blue-chip companies. The NASDAQ is the second-largest stock and securities exchange and attracts more technology-focused or growth-oriented companies. The Russell 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. Bond Aggregate is represented by the iShares Core U.S. Aggregate Bond ETF.

 

Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.