As the leaves on the trees begin their subtle change from green to gold, yellow, and red, lawns across the country have also begun their shift from green to red, white, and blue. Whether it’s a multiplying of lawn signs in your neighborhood, an influx of radio or TV commercials, or a bounty of direct mail from candidates, it’s evident that we’re nearing the peak of the election season.
As with all elections, there’s a lot at stake this November. Regardless of where on the political spectrum you land, the results of the thousands of races across our great land will impact schools, roads, taxes, and a litany of other topics, carrying important outcomes for each and every one of us. But from my desk, the question I get most frequently, and the one that I’m often most curious about as well every four years, is: How might the result of the presidential election impact my portfolio?
Before diving into an analytical answer to such a complex question, I think it’s important to acknowledge that, for most people, politics is a topic that can lead to opinions that conflict with data. Particularly with economic data, it’s not uncommon for people to view conditions as more favorable if the party that they identify with is in control of government. In an ongoing survey conducted by the Pew Research Center since the year 20001, respondents who identified as leaning toward one of the major political parties viewed the economy as better when their respective party held the presidency versus when it was held by the other. The responses of each side directly conflict with measures of both the performance of the U.S. stock market and with real GDP growth.
With that in mind, how do we consult decades of data to help inform strategies to successfully manage a portfolio through future political periods? One important thing to do is to simply “zoom out” and look at what we see in nearly 100 years of U.S. stock market data across all presidencies. In the chart below, we see that presidential control has shifted between Republicans and Democrats twelve times, and although there are certainly periods of declining values under both parties, the general trend is consistently and persistently up.
Data represents past performance. Past performance is no guarantee of future results. Table is for illustrative purposes only. Returns are based on the IA SBBI U.S. large cap stocks index from 1/1/26 to 12/31/69 and the S&P 500 Index from 1/1/70 to 12/31/23. Source: Morningstar Direct
Perhaps this begs the question—could we do better by being tactical and investing only during the tenure of one party or the other? In the chart below, we show the growth of portfolios for three investors: one who only owned stocks during Republican presidencies, one just during Democratic presidencies, and one who ignored the noise and just held stocks not considering who was sitting in the Oval Office. Although the outcomes are relatively similar if you choose one party or the other, the clear winner is the investor who owns stocks for the long run, regardless of which party holds the presidency.
Data represents past performance. Past performance is no guarantee of future results. Table is for illustrative purposes only. Returns are based on the IA SBBI U.S. large cap stocks index from 1/1/53 to 12/31/60 and the S&P 500 Index from 1/1/70 to 12/31/23. Source: Morningstar Direct
So, will the presidential election impact portfolios? It certainly may, but not likely in ways that we can predict or that support trying to reallocate based on the results. That’s not to say that presidents, their administrations, and related policies don’t impact the success of markets, but far more is driven by the economic fundamentals of companies; innovation and growth of industries; fiscal and monetary policies; and ongoing unexpected and unanticipated global events.
As the political landscape unfolds this fall, we know that opportunities will present themselves to improve your portfolio, but trying to predict both the outcome of elections AND how markets will react, is not likely to be a winning strategy in any November. The best way to take advantage of the growth potential of markets as a core part of a financial plan is to stay disciplined with a diversified portfolio that is proactively monitored and managed through whatever the next four, or forty, years have in store.
- https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/?slideId=investing-principles/gtm-conconfidencepol
NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.
