How might the 2024 presidential election impact markets? History may offer clues

The 2024 presidential election is quickly approaching, and investors may be wondering if and how the outcome will impact the stock market and underlying investments. While every campaign cycle comes with its unique set of circumstances, we can turn to history as an indicator of how markets typically act in an election year. Here are a few trends investors should keep in mind.

Historic trends in election years. In general, market volatility trends higher early in an election year as candidates are being finalized and then again as the election nears, as investors react to the ebbs and flows of the news cycle and grapple with the unknown of what is to come. Following election day, as the winner becomes clear, market volatility levels tend to normalize1.

The impact of incumbency. The candidate pool for presidency can further impact markets and volatility trends. Typically, volatility has been higher in election cycles where there has not been an incumbent in the running. Stock market returns have also been more favorable in years when an incumbent has been on the ballot, than when two non-incumbents have faced off1. The 2024 election will be an interesting test of these trends, as it is the first rematch of presidential candidates since 1956, when sitting President Dwight D. Eisenhower defeated Adlai Stevenson for a second time2.

Policy changes. Historically, market returns tend to be stronger in the first two years of a returning president’s term as investors have experience with the administration’s policies. Returning administrations generally have more experience navigating political barriers and may be better equipped to see policy through. How much any presidential administration can accomplish is limited by policymakers in Congress and local and state legislatures – and their political party make-up is a pivotal detail of election years. History has not been as kind to markets as the administration’s second term passes its halfway point. During these last two years, there is limited time to implement policy, and investors and the American public may start looking ahead to the unknown policies of a new administration, becoming more sensitive to fiscal and policy uncertainty as the next election draws near1.

Bottom line: Stick to the fundamentals and invest for the long term. Political cycles can be intimidating to investors as they look to prepare for the uncertainty that comes with the election year and beyond. Regardless of the political backdrop, financial markets are principally driven by growth in the economy, corporate profits and the direction of interest rates longer-term. Importantly, fluctuations in markets are normal, and it is usually beneficial to stick to the fundamentals. A diversified portfolio with a mix of different investments selected according to your goals and risk tolerance is key to avoiding potential overexposure to unnecessary investment risk. Diversification helps investors mitigate risks in their portfolios that may be caused by geopolitical circumstances, election volatility or policy changes.

It is normal for emotions to run high as you anticipate the uncertainty that an election, or an administration’s policies, may have on the economy or your portfolio. As an investor, it is understandable to consider the impact of an election on your investments, but remember it is only one short-term factor. Review your investment strategy and financial plan with a financial advisor who can help you stay attuned to your long-term goals.

1 – Ameriprise Financial: “Committee Perspectives: U.S. Election Guide” May 2024. Compiled by Ameriprise Global Asset Allocation Committee.

2 – Associated Press: “US has its first presidential rematch since 1956, and other facts about the Biden-Trump sequel” March 2024.

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