2024 U.S. election: The importance of staying invested

July 24, 2024 | 3 min read
Seema Shah
Chief Global Strategist

It can be easy for investors to let their political persuasions impact their long-term financial judgment. However, allowing the outcomes of elections, particularly ones as polarized as what investors are facing this fall, to trigger an adjustment to portfolio allocations or even a withdrawal from markets entirely, has historically proven to be a less than ideal decision.

The stock market and presidencies
S&P 500 price returns on a log scale with presidents and their parties highlighted since 1933

Chart showing S&P 500 price returns on a log scale with presidents and their parties highlighted since 1933
Source: Clearnomics, Principal Asset Management. Data as of December 31, 2023.

Don’t let political belief cloud long-term plan

Consider: U.S. stocks have almost always risen by the end of a president's term, regardless of their party affiliation, with the S&P 500 averaging double-digit gains since 1933 whether Democrats or Republicans occupy the White House. Additionally, historical data shows that market returns are generally positive during both election and non-election years. While the past doesn't guarantee future outcomes, and annual returns can be unpredictable, exiting the market due to an election result or simply because an election is happening is not a historically supported decision.

Presidential elections and stocks
S&P 500 total returns by presidential party, returns during presidency and lagged one year since 1933

Chart showing S&P 500 total returns by presidential party, returns during presidency and lagged one year since 1933
Source: Clearnomics, Principal Asset Management. Data as of December 31, 2023.

Furthermore, focusing too much on who was in the White House would have resulted in poor investment decisions over history. For example, from 2008 through 2020, the S&P 500 generated a total return of 236% across the Obama and Trump administrations. This occurred despite the vast perceived differences between the parties and the increasing polarization of Washington politics. It also occurred despite many budget battles, fiscal cliffs, debt ceiling crises, and U.S. credit rating downgrades, not to mention the global financial crisis, the pandemic, and more.

Focus on the fundamentals, not election-related headlines

This is why for most long-term investors, it makes more sense to focus on fundamentals rather than day-to-day election coverage. On a short-term basis, election headlines have the power to move markets and create stock market volatility. However, these moves are often quickly eclipsed by the long-term gains created by market and business cycles. These cycles are influenced by many factors, from economic growth to corporate profits, monetary policy to valuations, technological revolutions to globalization, and not just the occupant of the Oval Office. The historically strong returns since 2008, with the market reaching all-time highs, are more attributable to these underlying economic trends than to the administrations of Obama, Trump, or Biden.

U.S. Presidents, their terms, and S&P 500 returns
S&P 500 price returns on a log scale with presidents and their parties highlighted since 1933

Chart showing S&P 500 price returns on a log scale with presidents and their parties highlighted since 1933
Source: Clearnomics, Principal Asset Management. Data as of December 31, 2023.

This phenomenon, where markets perform both positively and negatively, regardless of political narratives about either party’s strengths or weaknesses, is best exemplified by the 1990s and early 2000s. Bill Clinton's two terms, from January 1993 – January 2001, coincided with the information technology boom, while the dot-com bust began as George W. Bush took office. Additionally, the 2008 financial crisis occurred at the end of Bush's second term, encompassing both significant market crashes within his presidency. So, while policies played a role, technological and financial innovations were the primary drivers of the booms and busts – and attributing the market behavior solely to Clinton’s and Bush’s presidencies would be an overstatement. The sitting president simply often receives too much blame and credit for economic conditions.

Investment implications

Ultimately, the cyclical and secular economic factors tend to influence the market more significantly than politics. Investors who allowed their political opinions to overrule their investing discipline may have missed out on above-average returns during political administrations they didn't like. Maintaining an active, long-term approach is advisable even for those concerned about political outcomes in Washington D.C.

Macro views
Disclosure

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Risk Considerations
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results and should not be relied upon to make an investment decision. Inflation and other economic cycles and conditions are difficult to predict and there Is no guarantee that any inflation mitigation strategy will be successful.

Important information
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