How Will Markets React to the 2024 Presidential Election?

As voters prepare for November’s election, many investors and families are asking: “How can I protect my finances during the 2024 election cycle?”

In the video below, Steve Cassaday, Cassaday & Company, Inc. Founder, Chairman, & CEO, provides insight into the relationship between elections and market performance, explaining why knee-jerk reactions to political events may not be in investors’ best interests.

This video highlights:

  • Why Cassaday & Company doesn’t specifically prepare portfolios for elections
  • Historical data on how markets have responded to past elections
  • Potential market fluctuations before and after the 2024 election

At Cassaday & Company, Inc., we focus on comprehensive wealth management strategies that withstand political cycles rather than making short-term adjustments based on election outcomes. For additional insight on how we prepare and protect portfolios by remaining broadly diversified, click here.

Full Video Transcript

Hello everybody. I’m Steve Cassaday, Founder and Chief Executive of Cassaday and Company, Inc. It’s my pleasure to bring you our briefing on the 2024 elections and impacts on investments and the economy. 

There’s several questions right now on the minds of investors.

Number one, who will win? Now, as you know, we have contempt for broad predictions. They are, at best, inaccurate and difficult to rely on when formulating investment policy. More importantly, all major events that have had a significant impact on the markets have been a surprise and were not predicted. 

This is axiomatic in that if the opportunity or a risk were known and clear, the markets would immediately react to it accordingly. Barring the possession of insider information or advance notice of an event, it is impossible and dangerous to position portfolios for outcomes that might not materialize.  

Investing based on predictions is a big gamble, but what are the experts saying?

Remember this — pundits predict because they are asked, not because they know. When equally credentialed experts have diametrically different opinions on the same subject, it calls into question the reliability of all such opinions. 

Expert Predictions vs. Actual Market Performance from the 2016 Election

Now, here’s one of the many examples of experts being totally wrong. This concerns the 2016 election, but I think it brings home the point.  

On the left you see the anticipated results if Donald Trump were to win the presidency. From the punditry, including, from left to right, Citigroup, David Tepper, Society General, a French bank, Ray Dalio, the manager of the largest private equity company in the country. And Paul Krugman, the esteemed economic expert from Princeton University. 

And the ranges go from down 4% to down to 30% if Trump were to be elected. The reality on the right side of the graph shows the one, five, one month, six months, and one year returns of the stock market, which vary from 1% to 21%. So had we relied on the experts in this instance in the 2016 election, we would have left significant money on the table.  

Analysis of Poll Accuracy In Recent Elections

But what about the polls? Well, polls have not always been accurate or reliable. According to Yahoo Finance, election polls’ historical accuracy has been spotty at best. In a 2023 examination of hundreds of U.S. election polls dating back to 1998, FiveThirtyEight.com found that pollsters accurately predicted the winner only 78% of the time. And in 2022, they did so in just 72% of the races.  

So especially with a race this tight, it is impossible to know with any certainty who will be the next president.

Assuming we knew who the president was going to be, what will their policies be? Unfortunately, campaign platforms, to the extent that they can be discerned, are rarely implemented after the winners take office. When it does happen, the finished product usually bears little resemblance to what was discussed during the campaign. Although there have been exceptions, betting on outcomes and making investment decisions based on campaign promises is not advisable. 

Do the markets do better under Democrats or Republicans? A 70-Year Comparison of Investment Returns Under Different Political Scenarios 

Well consider this. What if one hypothetical investor had only invested during Republican control, and another hypothetical investor had only invested under Democratic control, and a third remained fully invested over the last 70 years? What would the results have been? 

As many of you know, I am a psychology major, so I’m not really great with numbers, but I think that this green line is a lot better than the orange line or the yellow line in this graph.

The green line represents remaining fully invested since 12/31/1953, versus only investing when Democrats are in office, or only investing when Republicans are in office. The difference, as you can see, is quite profound and supports our guidance, which is you should remain broadly diversified and fully invested all of the time.  

Clearly, staying invested has historically been a much better choice. Timing decisions made based on who is in power have dramatically eroded returns. Investing should be bipartisan. Stocks tend to go up over long periods of time, irrespective of what happens in Washington. 

Remember, people care about elections, but markets do not. Historically, pre-election anxiety is usually a result of the inherent uncertainty of the process. Markets do not like uncertainty, and this can lead to choppiness.  

Historical Market Performance Before & After Elections

This chart shows 40 years of pre-and post-Election Day activity:

Post-election one-year average returns are 10%, with only a few being negative. This rebound is a result of a lower level of uncertainty. Although not a guarantee of future results, this may mean the remainder of 2024 and 2025 could be positive for our portfolios. 

Key takeaways from our presentation today are:

  1. Politics has very little to do in the long run with what happens in the Stock Market.
  2. It will be very difficult, if not impossible, to predict the outcomes of this election.
  3. Campaign promises and policy implementation have historically been very different from one another. 

So, in conclusion, remaining fully invested and broadly diversified continues to be our guidance. We hope you found our presentation to be interesting and informative.

And remember, we are never too busy to discuss your portfolio or your financial plan in person or virtually. Please do not hesitate to contact us with any questions, comments or suggestions. Thank you, and enjoy the rest of your day. 

 

Important Disclosures: Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory and insurance services offered through Cassaday & Company, Inc., a registered investment advisor not affiliated with Osaic Wealth, Inc. Representatives may not be registered to provide securities and advisory services in all states. Cassaday & Company, Inc., and Osaic Wealth, Inc., do not offer tax or legal services. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.  

The views expressed are not necessarily the opinion of Osaic Wealth, Inc. and should not be construed directly or indirectly as specific investment advice.  Due to volatility within the markets mentioned, opinions are subject to change without notice.  Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.

This material provided by Cassaday & Co is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable. Cassaday & Co, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Cassaday does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice.

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