The Relationship Between Presidential Elections and Stock Market Trends
It is only natural for everyday investors to have concerns about stock market movements during presidential election years. During these years, there is a lot of noise and discussion circulating in the media that heightens our expectation of market volatility. Today’s blog will shed light on the relationship between presidential elections and stock market returns. By gaining insights from market trends over nearly a century, we aim to provide clarity and empower investors with a more nuanced understanding of the financial market.
What Happens to the Stock Market in a Presidential Election Year?
Fortunately for investors, we have close to a century’s worth of historical data to help us answer this pressing question: what happens to the stock market during a presidential election year? When we evaluate market trends over the long term, we learn that stocks have a consistent trend upward. This pattern holds strong even in the U.S. presidential election years.
The below graph from Dimensional shows the growth of $1 invested in the S&P 500 Index, which is a representation of the broader U.S. stock market.
Regardless of who wins, or which political party has control, stocks have trended upward for nearly a century. Let this serve as a reminder that the disciplined investor is rewarded over the long term.
Invest in Companies, Not Presidents
As an investor, you are investing in companies. Not who is in the White House. Regardless of the political landscape, US companies are driven to serve their customers and expand their businesses.
Place your trust in the market. Understand that the share prices of companies represent the aggregate view of millions of buyers and sellers. While the president may influence stock prices, it is essential to recognize that numerous other factors play a role. All these factors are woven into the fabric of current market prices.
Various elements, such as the decisions made by foreign leaders, fluctuations in interest rates or oil prices, and advancements in technology, can influence market dynamics. It's important to acknowledge that there are a multitude of factors contributing to market performance, many of which individual investors will find challenging to predict. Recognize that the broader market operates as a complex interplay of these diverse elements.
A more efficient way to protect against concerns over market performance is to diversify your investments. Ensure your portfolio has sufficient diversification to smooth out the ups and downs of the market.
The Bottom Line
Almost a hundred years of US stock market data tells us that tying our investment decisions solely to who is in the White House isn’t a reliable path to better outcomes. The stock market has a way of rewarding those who stay disciplined, and this trend has been going on for decades. So, find comfort in knowing that patience and a long-term view are key to successful investing.
Need help managing your investments? Work directly with an experienced, licensed financial advisor at Sensible. Schedule a call today so we can show you how we’ve helped hundreds of people like you invest for a retirement they love.
This blog article is for informational and educational purposes only.
Sources:
Dimensional Fund Advisors
