With the election right around the corner, clients often ask us about the implications for their investment portfolios. As changes in the political order can impact policy and society, it’s natural to assume that election outcomes may significantly affect financial markets.
Here’s your friendly reminder about how an election impacts the market and, most importantly, not to jump to any financial decisions.
What History Tells Us About Markets & Election Years
For us to address this topic, it’s prudent to look backward over several different election outcomes. Reviewing the historical record, there are a few noteworthy points to consider:
- Volatility tends to rise prior to election day and subside thereafter. Equity return dispersion is notably higher during election years.
- Markets are nonpartisan. Data does not suggest that either party has been better for equity markets on average.
- Congressional races matter, too. Due to congressional division, what a presidential candidate proposes is often different from what they deliver, making policy/sector bets especially challenging.
We consider the election cycle a data point but recognize that numerous variables simultaneously drive market performance. This year, the economy and the Fed have been in focus, with recent concerns about the labor market and growth outlook, with inflation risk now in the background. We anticipate macroeconomic uncertainty to persist into the near future.
Implications for Investors
We encourage our clients to avoid making emotionally driven decisions based on election outcomes. The election will continue to generate headlines, but remember that policy change is highly uncertain and takes time to work itself through.
We recommend structuring your portfolio around your long-term objectives and staying focused on your goals rather than reacting to short-term market noise. However, we also acknowledge that volatility can present valuable strategic opportunities. As our Analyst Greg Partyka notes, “Consider using market volatility opportunistically with a longer-term perspective.”
Carlson Investments partners with our clients to navigate market fluctuations, with an eye to the longer term. Feel free to reach out if you’d like to discuss strategies to strengthen your portfolio!
Carlson Investments does not provide tax, legal, or accounting advice. This content has been written for informational purposes only. Always consult your individual tax, legal, or financial professionals for advice tailored to your situation.
Let's Talk
Finding a better way doesn’t start with you learning about investment strategy. It starts with us learning about you.
Let’s get started.
Contact Us