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Presidential Elections & Your Retirement

With the aid of James Carville, Bill Clinton was elected President of the United States in 1992, based on the election theme that “It’s the economy, stupid.” The presidential election is upon us once again. We know who the contenders will be, and most voters are not happy about their choices. People are worried about how the results may affect all aspects of their lives. There seems to be more economic anxiety around the election than normal. A survey by the Nationwide Retirement Institute found nearly half of investors believe the results of the federal elections will have a bigger impact on their retirement dreams and portfolios than market performance. One in three believe the economy will plunge into a recession within a year if  their least preferred party gains more power in the 2024 federal elections. 

The question of whether and how presidential elections affect investments has received a fair amount of investigation. Looking at stock market returns by year of the election cycle, the year of an election and post-election saw average returns of 8-9%, with the average return dipping in the year leading up to the midterm and increasing to nearly 15% the year after. These are just average, with the range of returns running up to 40% and down to -40%, as shown in the figure to the right. 

The data show there’s also little reason to believe that someone’s preferred candidate or party losing power will cause the market to freefall. Markets are famously nonpartisan, with the S&P returning positive average returns across all partisan permutations of the presidency and Congress. The historical evidence shows that market returns are typically more dependent on economic and inflation trends rather than election results. 

There has been more volatility observed during election years since 1980, which is a feature, not a bug, of investing in any year. 

HCM‘s approach to financial planning has attempted to capitalize on volatility for over 30 years. As Retirement Planning Specialists, we aren’t distracted by the most recent market fluctuation; we’re investing for the long term to help provide financial freedom for our clients and their families in retirement. That means our aim is to craft a total return portfolio that delivers reliable income that is dependable, diversified, and growing faster than inflation. We focus our investments on companies with solid fundamentals and a history of solid economic performance. There isn’t a partisan way to run a successful company and companies want to perform their best regardless of who’s in office.  

Curiously, even though the presidential race doesn’t do a great job of predicting market performance, it seems that market performance is a reliable indicator of predicting the winner of the presidential race. In 19 of the last 22 elections, the S&P climbing in the three months before the election has successfully predicted an incumbent party victory. We will know if this trend continues in a few short months.  

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