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Will the 2024 Presidential Election affect your finances? Read the historical data and learn how elections have affected the stock market in the past.
With 2024 being an election year, many investors and individuals have concerns about their finances and the potential impact on their wealth. From the volatility of the stock market to policy changes, election uncertainties raise reasonable questions about how to make the best financial decisions. Nevertheless, it’s necessary to keep a rational viewpoint and not allow yourself to be swept off your feet by political happenings.
Historical Perspective
Though presidential elections typically attract great publicity and investigation into their possible impact on the stock market, the historical record indicates that elections generally have a fairly small overall influence on stock market performance in the long run. Financial markets are mostly affected by economic fundamentals like corporate earnings, interest rates, inflation, and consumer spending patterns. Investors usually advised to stay calm, collected, and be patient with their investments instead of trying to time the market or make abrupt adjustments only based on election outcomes.
U.S. Bank's analysis of historical data indicates that market returns are more closely correlated with underlying economic factors and inflationary pressures than with the outcomes of presidential elections. In other words, the state of the economy and inflation levels appear to exert a stronger and more consistent influence on market performance than the results of any given election cycle.
Fidelity Investments makes the point that historically, US markets have generally risen in election years. They also note that financial markets are neutral towards political parties and events. Your investment portfolio should follow a long-term plan rather than constantly changing based on the latest news or election outcomes.
Market Performance and Election Cycles
There is no clear pattern that the stock market performs better under one political party versus the other. Research by Invesco shows that monetary policy has had a greater market impact than who the president is, and the composition of the US economy has been consistent for decades. Fidelity Investments echoes this sentiment. What happens in Congress and with The Fed has more bearing on the market than which political party is in control or who wins the Presidency.
U.S. Bank states that while elections don’t seem to have any mid- or long-term influence over the stock market, specific industries could be affected. They suggest that the following policies presented by candidates be watched during the election cycle:
- Individual and corporate tax policies, including state and local income tax (SALT) deductions
- Spending priorities, such as energy, infrastructure, and defense
- Healthcare
- Regulation
- Immigration policy
- China
- Geopolitical conflicts
Investment Strategies Amidst Elections
One mistake investors often make is drastically changing their investment strategy based solely on election results. However, financial experts like Fidelity Investments and U.S. Bank advise against this approach. Reacting emotionally to elections by overhauling your portfolio can cause you to miss out on long-term growth opportunities. It's best to stay focused on your long-term financial goals and maintain a diversified portfolio that matches your risk tolerance.
The stock market's performance is driven more by economic factors like corporate profits, interest rates, and consumer spending rather than which political party wins an election. Experienced investors know that basing decisions primarily on election promises or outcomes is risky. It's wiser to pay attention to long-term economic trends and policy changes that truly impact the markets. By sticking to a disciplined investment plan aligned with your objectives, you can better navigate election cycles without making rash moves.
Economic Fundamentals vs. Political Events
While elections generate a lot of attention, smart investors stay focused on underlying economic factors. Financial experts like Naveen Malwal and Denise Chisholm emphasize the importance of focusing on economic fundamentals, such as corporate earnings, interest rates, and consumer confidence, when making investment decisions. These factors have a more significant and lasting impact on the financial markets than political events.
Look past the noise of election cycles. Instead, watch for signs of real economic strength. Basing your investment strategy too heavily on political events is generally unwise and can derail your long-term financial goals. By prioritizing solid economic data over political rhetoric, investors have a better chance of stable growth while avoiding unnecessary risks.
As the election cycle unfolds, it's natural to have concerns about the potential impact on your finances. However, it's essential to maintain a long-term perspective and avoid making rash decisions based on short-term political events. By focusing on economic fundamentals, diversifying your portfolio, and aligning your investments with your risk tolerance and financial goals, you can navigate the election cycle with confidence. Remember, the key is to prioritize your long-term financial objectives rather than reacting to temporary political shifts.
