By: Sheila Morgan
As we approach the 2024 U.S. presidential election, many of us are understandably concerned about potential market volatility and its impact on our portfolios. We may be wondering, “How will the outcome affect the stock market?” With political pundits, sensationalized media coverage, and perhaps our next-door neighbors all offering their two cents, it’s crucial to separate fact from fiction. While elections often create short term ambiguity, we believe that their long-term effect on market performance is typically less significant than we fear.
Since 1924, the United States has experienced significant economic fluctuations under the leadership of 17 presidents from both major parties. During this period, the nation has weathered one Great Depression, 13 recessions, and 8 financial crises. Since the late 1970s, presidents from both parties have presided over periods of market expansion and contraction. The markets have demonstrated resilience in the face of both macroeconomic shocks and geopolitical events.
Economic cycles play a crucial role in market performance, often independent of which party holds the White House. The terrorist attacks of September 11, 2001, during George W. Bush’s presidency, sent shockwaves through the global economy and markets. The 2008 financial crisis, which spanned the final years of Bush’s term and the early years of Barack Obama’s presidency, resulted in the most severe economic downturn since the Great Depression. Most recently, the COVID-19 pandemic, which affected both Donald Trump’s and Joe Biden’s administrations, caused unprecedented disruptions to global markets and economies. These events serve as stark reminders of the unpredictable nature of external shocks and their potential to dramatically influence market performance, irrespective of the political party in power or the specific policies under pursuit.
With monetary policy still at the forefront of the macro landscape in 2024, we are left wondering how the election might influence Fed policymakers. Historically, the Fed doesn’t sit on the sidelines during election years but rather continues to pursue its dual mandate of price stability and maximum employment while maintaining its independence from politics. The Fed’s monetary policy decisions, such as adjusting interest rates or implementing quantitative easing measures, can have far reaching effects on the economy. In a significant development, the Federal Reserve has recently made its first interest rate cut since 2020. This decision, coming just months before the 2024 presidential election, has sparked questions and discussions about their political neutrality and its effect on the election outcome and market performance. Understanding these dynamics can help us make more informed decisions.
On Tuesday, November 5, 2024, Americans will vote in one of the most contentious national elections our country has ever witnessed, determining control of Congress and the White House until the 2026 Congressional midterm elections. The outcome will significantly shape domestic and foreign policy, with profound implications for the broader market. Remember that Congressional races are as important as the presidential election. Gridlock acts as a check on power, preventing any single party from implementing sweeping changes that might negatively impact certain economic sectors. This dynamic underscores the importance of down-ballot races for Senate and House seats, which may be just as crucial as the presidential contest in shaping the economic landscape.
Despite these challenges, the markets have shown remarkable resilience. A striking example of market resilience is that a $10,000 investment in the stock market over fifty years ago assuming an average annual return of 10% would have grown to $1,117,390.90 by 2024. This demonstrates the long-term benefits of staying invested through various economic and political cycles. While short-term market performance can be volatile and unpredictable, the long-term trend has historically favored long-term investors who remain in the market despite political changes and economic challenges.
History is our guide to navigating perilous times. The markets will continue to demonstrate their remarkable capacity for resilience and growth over the long term. The wisest course for us is to stay focused and resist the urge to make drastic changes to our long-term investment strategy based on political prognostics. This approach will continue to position us to weather the volatility and uncertainty of any election year and capitalize on long-term growth opportunities.
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