Do I need to worry about election results for my portfolio?
10/8/2024
Markets generally dislike uncertainty, especially during elections, as investors ponder potential candidates and their promises. This uncertainty often leads to volatility before elections. However, historical trends show that post-election, the stock market typically gains clarity, prompting companies to make strategic decisions and reinvest sidelined capital, resulting in positive returns, particularly toward the year's end.
Analysis indicates that stock returns correlate more with fundamental economic factors—like earnings growth, interest rates, GDP growth, and inflation—than with the political party in power. Historical data shows slightly higher median annual returns under Democratic presidents by calendar year, while Republican presidents exhibit better growth rates by term. However, the best outcomes often occur with a split Congress, especially alongside a Democratic president, as divided control tends to moderate policies, creating a stable environment for businesses.
Adjusting portfolios based on election rhetoric can be tricky and may not yield expected results, although sectors like Tech and Utilities often perform better under Democratic administrations. To prepare for elections, it’s crucial to follow sound investment principles: maintain cash reserves for known distributions, diversify asset classes, and build portfolios resilient to volatility. Staying focused on long-term goals and fundamental market drivers can help navigate election-related uncertainties.
Sources: JP Morgan Asset Management
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