A Post-Election Reflection (2024)
Another election day has passed, though the excitement may be far from over. At least one thing is certain to occur between now and inauguration day: attention-grabbing headlines about what this all means for the markets. Whether these headlines fill with doom and gloom or continue to portend a bullish bonanza, we suggest the following sensible, time-tested insights.
Election outcomes and market outcomes are not always correlated.
Consider this research by Fidelity that shows that the U.S. stock market (as measured by the S&P 500 Index) has produced very similar returns under Democratic and Republican presidents—and it doesn’t matter which party controls Congress, either.
Even when we look more granularly at individual sectors, there isn’t much of a difference in market returns. In fact, in every presidential election year since 1976, every sector has outperformed at some point in years the White House has gone blue and in years it’s gone red. The reverse has also been true: Every sector has underperformed amid both parties’ victories.
Cause and effect are rarely as direct as we might hope or fear.
Consider this point alongside any potential temptation you may be feeling to alter your investment plan because “X” has just happened, or in case “Y” seems about to.
As the election concludes, pundits will proclaim they can predict how the markets will respond to new policies coming out of a new administration. At least in terms of tomorrow’s market prices, they do not know. They cannot know. There are simply far too many interacting interests to make the call. Politics is a factor, not the factor.
It’s much easier to explain an outcome than to predict it.
Scientists have detailed models for explaining why volcanic eruptions occur, but they still cannot predict each eruption. The same can be said for financial markets. We have excellent models for explaining a market’s overall factors and forces. But our ability to predict its individual events or specific moves remains as elusive as ever.
Elections come and go. Your investments last a lifetime.
As U.S. voters, we have the opportunity to change our next president every four years. As investors, we are best served by measuring the balance of power in our portfolio across decades rather than years.
As this excellent illustration demonstrates, “for nearly 100 years of U.S. presidential terms [the data] shows a consistent upward march for U.S. [stocks] regardless of the administration in place.”
In other words, your best chance for achieving your personal financial intentions remains the same:
Create a sensible plan, and stick to it.
Continue to give your investments ample time and space to benefit from the market forces just described.
As we move forward together, we hope you continue living according to your values while remembering this time-tested advice about your lifetime investments.