Market update with one week until the election
We’re getting a lot of questions these days from clients about what the election means for their portfolios and the markets. It generally seems to come from a place of fear – if my preferred candidates lose, I fear the economy won’t do well. But the short answer is that while elections are very important to us as citizens, they are not all that important to us as long-term investors.
This is a good time to take a step back for some perspective on how the economy works. We all make decisions every day about how to earn income, spend our money, and save for the future. Companies do the same thing, and so does the government (albeit with an emphasis on the spending part). Add that all together, and you’ve got the economy. When was the last time you adjusted your grocery store shopping list because of a new law Congress passed? Or skipped taking a vacation because of who was in the White House? We as investors want the economy to grow, and we want companies to earn more money. While the government is part of that economic equation, it’s not the most important part.
The fact is that capital markets and the economy have done well under a variety of political circumstances. As outlined in JP Morgan’s US 4Q 2024 Guide to the Markets1, through the end of September, under President Biden economic growth has averaged 3.1%. Prior to that it was 1.8% under President Trump, 2.2% under President Obama, and 1.9% under President Bush. The S&P 500 posted double digit average annual returns under all except President Bush, whose 8-year tenure was marred on both ends by recessions.
We’re also hearing many people say that this time is different. And they are right. We only have a presidential election every four years, and a lot can change in four years, so every election really is different. Every economic expansion is also different, as well as every recession. As Mark Twain said, history doesn’t repeat itself, but it often rhymes. Things change, but that doesn’t mean you need a totally new approach to your portfolio. You should develop a financial plan specific to your goals and circumstances. Once you have that in place, design your portfolio to be consistent with that long-term plan, not short-term political maneuvering.
1JP Morgan’s US 4Q 2024 Guide to the Markets, slide 68 (https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/?slideId=investing-principles/gtm-conconfidencepol)
The author of this article is Tom Lally, CFP®, Financial Planner at Rope Financial.
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