Does The Presidential Election Impact The Stock Market?
Financial Planning In 2024
Election years often stir up emotions that can impact our financial decision-making, yet history has shown that markets do well regardless of who becomes president. In fact, nearly a century of returns shows that stocks have trended upward during election cycles.
“There’s no silver bullet for the type of president needed to create a positive market,” explained Jerrod Ferguson, Vice President at Vance Wealth. “Whether a Republican or Democrat is in office, the markets have shown consistent growth over time.”
Markets are most efficient with a long-term approach. For instance, if someone invested just $1 in 1926, it would have grown to about $10,000 over a 97-year period, according to a study of the S&P 500 Index conducted by Dimensional Fund Advisors.
While the presidential race may seem like it has significant influence over the markets, there are so many other factors at play. Billions of dollars’ worth of trades are made every day by investors all around the world. Industries are constantly evolving. Interest rates, oil prices, technological advances, and actions of foreign leaders all affect market pricing at the same time.
“There’s so much information going into the market on a daily basis that outguessing market pricing is not only flawed but shortsighted. The data is continuously updating and changing,” Jerrod explained, “yet there’s no real data to show election years are more volatile than others. Volatility is a normal part of the equation.”
Whether we are in an election year or not, a comprehensive financial plan, proactive investment approach, and exposure to strong companies matter much more than who is president.
“We focus on what we can control,” Jerrod continued, “so if an election does bring unexpected events or volatility, it’s okay – because we planned for this. We weather the storm.”
At Vance Wealth, advisors plan for the unexpected while simultaneously looking for some of the more positive changes in the market. “With so much technological innovation right now, there’s a lot to get excited about,” Jerrod added. “You can focus on the president, but there are so many other factors – both domestic and global – that affect markets, too, which is why we don’t try to predict or time markets.”
While it can be tempting to engage in political commentary, it’s important to remove emotion from the decision-making process and rely instead on the long-term approach.
“We have clients who fall politically on both sides, and our clients do well under any presidency,” Jerrod explained. “We grow wealth by having a plan in place that spreads risk across companies that have historically done well, regardless of who’s in the White House.”
Source: Dimensional Fund Advisors LP, “The Hypothetical Growth of $1 Invested in the S&P 500 Index,” January 2024. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
