How the 2024 Election Will Affect Your Portfolio
On this episode of A Wiser Retirement™ Podcast, Casey Smith and Brad Lyons, CFP® discuss how human behavior leads us to believe that a presidential election can make or break our investments.
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In our financial planning meetings, we are already beginning to hear clients’ concerns in regard to what will happen next year with the 2024 election. While the presidential election is very important and can change the course of our country in varying ways, your financial planning doesn’t depend on it.
In recent news, the market volatility and the American debt ceiling have been causing great anxiety throughout the country. For investors, the greatest risk would be that US bonds get downgraded and the US defaults on their debt payments, which has happened before and the impact wasn’t as catastrophic as we would think.
Thus, a wise investor thinks rationally even when emotions seem to be generally high. If the nation does not choose your candidate, it does not mean that the United States will crumble into poverty. It hasn’t happened, and it won’t in the future. As we focus on the economic impact of the elections, we have to look at the data.
Presidential Elections and the S&P 500
The well-known writer of the Stock Trader’s Almanac, Yale Hirsch, collected data over many years from the Stock market. As a result, he came up with the Presidential Election Year Cycle Theory. In this theory, he looked for trends and patterns in the S&P 500, regarding the economy and politics. According to his findings, the newly elected president works hard to put in place the measures that got him elected. This causes a level of uncertainty, which leads to a lesser sense of trust in the Stock Market, specifically the S&P 500. This reflects in lower returns in stocks in the first 2 years of a new administration. Furthermore, a common trend seems to be that by the third year, the president starts to focus on being reelected, which will only happen if they boost the economy. So, the S&P 500 tends to do better on the third year. This is an interesting observation, but it doesn’t mean that you would use this to invest because it is a theory and a pattern someone saw.
Finally, the elections are a season just like Winter or Summer, and are unavoidable. We have to understand the matters that the elections do have an impact on. Those are mostly moral matters because an investment should live longer than an election cycle.
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02:00 Economic Uncertainty
13:50 Presidential Elections and the S&P 500
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