The Stock Market and Politics Since 1950
With the 2024 election approaching in November, many significant policy decisions are at stake, from the federal deficit to healthcare, immigration, and more. When I talk with clients during an election year, it’s normal to hear concerns about how the result may impact their portfolio. However, I’ve noticed that the mood of the conversation tends to be quite biased toward their expectations for the election. In 2016, when Donald Trump was elected, I had many Democratic clients concerned about how the economy would implode. In 2020 I heard the same concerns from Republican clients when Joe Biden was elected.
In the past few months, I’ve heard concerns from clients on either side of the political aisle. Unfortunately, the political social division we see has had a much more significant impact on how people invest than it ever should. Party affiliation seems to lead to an “all or none” mentality when the reality is much more nuanced.
The winner of the election will have an economic impact to some degree. However, it is likely to be felt in specific industries more than others, as opposed to a total economic boom or collapse. Stock market performance during any presidency has much more to do with the stage of the economic cycle that a president inherits than anything else. For example, if a president inherits an overheating economy, leveraged to the hills like in 2007/2008, they are likely to get worse than average returns in the stock market. On the flip side, they will likely get above-average performance if elected toward the end of an economic reset like in 2002.
Investing based on your political affiliation has been a horrible mistake for long-term investors. Consider the difference between investing $100,000 since 1950 only when one party was in office and investing during every presidency, regardless of party.
At best, you captured 10% of the total market return since 1950, and at worst, only 3%! No one knows the future of the stock market. It is simply “usually up, but sometimes down.” That is the case in election years as well. Political opinions should be expressed at the polls, not in your portfolio.
Happy Planning,
Alex
This blog post is not advice. Please read disclaimers.