What should you know?
It’s almost Election Day in the US once again. As is customary, the media is filled with predictions about how the results might impact stock markets.
It’s natural for investors to seek connections between who wins the White House and which way stocks might move. But how have markets historically reacted to election outcomes?
The graphic below shows the distribution of monthly returns for the S&P 500 Index from January 1926 to December 2023. The blue and red lines represent months when a presidential election took place, with red indicating a Republican victory and blue indicating a Democrat victory:
Breaking the task into smaller, manageable pieces can help, with the first piece being the doorstep mile. Once you complete this initial step, the subsequent steps become more manageable.
The data reveals that returns in months when US presidential elections took place have not tended to be that different from returns in other months.
Election months haven’t produced extreme returns in one direction or the other, and the winning party hasn’t been a reliable driver for the direction or magnitude of market movements.
Why should you care?
Amidst all the ‘noise,’ it’s essential to stay focused on your long-term investment objectives.
Making investment decisions based on short-term metrics is generally unwise, and elections are no exception.
While we can’t predict exactly how markets will behave during or after these elections, one thing is clear: stocks reward disciplined investors who stay invested for the long term, regardless of who is in the White House.
