Investors' Election Year Worries Could Be Overblown, Experts Say

As the 2024 U.S. presidential election nears, many investors report worrying about the potential impact of the election on their portfolios. However, experts, supported by past market performance, suggest these fears could be overblown.

KEY TAKEAWAYS

• Over half (61%) of investors surveyed by Investopedia say they're worried about the 2024 U.S. presidential election affecting their portfolios.
• However, historical data shows markets have tended to rise in presidential election years, with the S&P 500 recording positive returns in 83% of the 24 election years since 1928.
• Experts from J.P. Morgan, Fidelity Investments, New York Life Investments, and Comerica Wealth Management suggested that investors' election worries could be overblown.
  

2024 Election Tops Investors' Biggest Worries

Since early November, investors have grown increasingly worried about the 2024 election in the U.S. potentially affecting their portfolios, with over half (61%) of investors identifying it as a concern, according the results of Investopedia’s latest reader survey. It was the leading concern among respondents, followed by worries about war in the Middle East, a potential recession, and inflation.

Those findings roughly tracked with results of other surveys, with nearly half (45%) of investors surveyed by Nationwide also saying they anticipate presidential and congressional elections could have a greater impact on their portfolios than market performance.1

Broken down along party lines, Republican investors were slightly more likely at 68% to say they expect the presidential election will have a direct, immediate, and lasting impact, compared to 57% of Democrats.

History Suggests Positive Market Performance During Election Years

While past performance isn't necessarily a predictor of future returns, an examination of market performance in past election years could be encouraging for worried investors. 

Historical data shows markets have tended to rise in presidential election years, with the S&P 500 recording positive returns in 20 of the 24 election years since 1928, or 83.3% of the time.

The average return for those election years was 11.58%, according to figures from First Trust. That's well above the S&P 500 average return of 9.81% for all years since 1928.2

Filter Out the Noise, Focus on Fundamentals

“Elections may seem like a big deal at the moment, but historically have had little bearing on what path the economy and market ultimately take,” according to J.P. Morgan strategists, who said that “while volatility may pick up with the unknown heading into an election day, stocks tend to forge ahead as uncertainty fades.”3

Investors "shouldn’t be making big changes in your portfolio because of an election,” said Denise Chisholm, director of quantitative market strategy at Fidelity Investments, noting that investors “have to be very careful about assuming that any angst surrounding the upcoming election may be predictive of future returns."4

New York Life Investments strategists said they “expect the 2024 election, like its predecessors, to include both political noise and real policy change" and "encourage investors to stay above the noise as it does not impact economic or market outcomes.”5

“As sensational political headlines and escalating geopolitical tensions affect investor sentiment, a focus on the fundamentals of elevated interest rates, moderating inflation and recovering profits should enable long-term, diversified portfolios to stay on course for their investment objectives,” John Lynch, chief investment officer (CIO) at Comerica Wealth Management, said.

Article Sources

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1. Nationwide. "Nearly Half of Investors Believe the 2024 Election Will Have a Bigger Impact on Portfolios Than Market Performance."
2. First Trust. "Election Client Resource Kit."
3. J.P. Morgan. "2024 Elections: 3 thoughts on the year ahead."
4. Fidelity Wealth Management. "Election 2024: Anticipating the market impact."
5. New York Life Investments. "The investor’s guide to election years: 2024 edition."
6. Comerica Wealth Management. "Presidential Election Year Chartbook."