The Presidential Elections and Your Financial Portfolio
July 2024
We are quickly approaching yet another significant presidential election and with that comes many uncertainties, especially around finances. We understand that what happens on Capitol Hill can influence the nation's economic conditions and, by extension, your wallet. There’s a lot of noise out there, but our goal is to help you cut through it and be well-informed on how these political changes may impact your investments.
Below we have included information we find necessary for our clients to have regarding the relationship between elections and economic movements.
The Presidential Elections and Your Financial Portfolio
You've probably noticed how shaky the stock market can get when elections are just around the corner. Well, there's a bit of history behind that. Typically, the year leading up to elections sees weaker performance in the stock markets compared to other times. For instance, since 1932, the S&P 500 usually gains about 7% in the 12 months before elections. That's a bit lower than the 9% it usually makes outside of those years.
More recently, things have seemed even less promising. In fact, in the year before the last 10 presidential elections starting from 1984, the average increase was just around 4%. It’s not just your imagination, the markets really do seem a bit more tumultuous during those times.
Nobody's certain what 2024 will bring, both for the election and the stock market, but it's probably wise to expect a bit of a bumpy ride. This is something to keep in mind as you look over your investments and review your financial plan.
It’s no secret we’ve had our fair share of rough patches when it comes to the stock market, especially during some recent election years. Take a stroll down memory lane to the early 2000s, when the dot-com boom went bust. On one particularly rough day – April 14, 2000 – the market took a nearly 10% hit. By October 2002, the Nasdaq was down by almost 80%.
Fast forward to 2008, and it was the housing market meltdown that had us all biting our nails. During the fall of that election year, the S&P 500 had several days when it plunged by 7% to 8%. It wasn’t until March 2009 that things seemed to hit rock bottom, with the S&P down nearly 60% from its peak in October 2007. It took a grueling six years for it to claw back and finally edge above that previous high.
Now, let's talk about 2020. Just when we thought we’d seen it all, the COVID-19 pandemic shook us to our core. In March, the Dow tumbled nearly 3,000 points in a single day – its worst fall to date, dropping about 13%. In a mere 22 trading days, the S&P 500 plummeted by 30%.
Imagine being retired with a million bucks invested for your golden years, only to see it shrink to $700,000 in just over three weeks. Decades of savings vanished almost overnight. Scary, right?
But, despite what seems like constant chaos during those election years, the market ends on a positive note. Historically, the S&P 500 Index has exhibited a predominantly positive trend during presidential election years. To illustrate this, since the establishment of the Index, there have been 24 election years, of which 20 concluded with gains in the market. Furthermore, an analysis of the returns from 1928 to the 2020 election reveals an average increase of 11.58% in the total returns of the S&P 500 during presidential election years. This statistic suggests a favorable outlook in such periods.
Again, as we navigate through another election year, the potential for market fluctuations remains a pertinent topic. The key takeaway from this article highlights the necessity for a well-crafted financial plan that effectively mitigates the risk associated with such unpredictable events.
Conducting a straightforward risk analysis could clarify the level of exposure your assets have to market risks, and help you to evaluate your likelihood of achieving your financial objectives. Ensuring your financial plan is resilient and capable of supporting your desired lifestyle without unnecessary risks is imperative. We are here to assist you in reviewing and adjusting your plan to help you stay on track to achieve your financial goals, especially as we are in the midst of a presidential election year.
Advisory products and services offered by Investment Adviser Representative through Prime Capital Investment Advisors, LLC ("PCIA"), a federally registered investment advisor. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management ("PCWM") and Qualified Plan Advisors ("QPA"). ©2023 Cornerstone Retirement Group, Inc. - All Rights Reserved.©