Presidential elections come once every four years, and each is an election like never before… just like the ones before. While elections come with a certain frequency, market downturns do not, and they rarely are correlated to presidential elections. Most election years have seen the S&P500 post positive returns, despite what some headlines and self-interested parties may want you to believe.
Contrary to what many people may believe, the stock market has performed better on average during election years. Since the 1928 election, markets have had a positive return during an election year 83% of the time. The average return in those election years was 11.28%, a figure larger than the average performance for all years between 1928 to 2023 of 9.9%. Vanguard research dating to 1860 shows there is no statistical relationship between a 60/40 portfolio’s performance and election years — meaning elections have had no significant impact.
Market prices aim to price in current events and future expectations. This is one reason efficient markets are not significantly affected by elections — because they are already priced in. While the market attempts to price in current events, volatility can be a factor to consider. Higher volatility is usually seen outside of a 100-day window before and after the election rather than inside the window. This means that during the 100 days leading up to a presidential election, and the 100 days after the election, volatility is lower than the yearly average.
Volatility decreases for several reasons, and an important one is the unknown. Investors may be waiting to see who is elected before making significant financial decisions. This decreased trading activity can aid in lowering volatility during the 100 days before and after presidential elections. Volatility is seen during times of financial crisis, such as during the 2008 global financial crisis, the dot-com bubble of 2000, and the COVID-19 pandemic. All of these three crisis events saw much higher volatility than during the election years of 2016, 2012, and 2004. While the volatility from global events in 2008 and 2020 were both election years, the elections themselves were not what caused the volatility but the global crises.
While presidential elections are important, they are not significant market events. It is important to stay the course with your long-term financial plan rather than to make decisions in response to political fears. Controlling our emotions is paramount when it comes to successful long-term investing. Election years always bring pundits attempting to use our emotions to galvanize support of a political candidate, but letting them sway our investment decisions can be damaging to long term success.
We at EVOadvisers recommend people speak with their CFP® professional to ensure their investment portfolio is in alignment with their long-term goals. If you don’t have a CFP® professional, and would like to meet with a member of the Fee-Only EVOadvisers team, please follow this link to schedule time with an advisor.
Jack O’Brien CIMA® is a Certified Investment Management Analyst educated at Chicago Booth School of Business and Virginia Tech. EVOadvisers is a Fee-Only financial advisor based in the Scott’s Addition area of Richmond, Virginia. EVOadvisers also has an office in Irvington, Virginia to better serve clients in the Northern Neck of Virginia. If you have any questions about financial planning and would like to talk with one of our Certified Financial PlannerTM professionals, check us out at www.evoadvisers.com or call (804) 794-1981.