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In general, election years tend to bring volatility to the stock market, but is it more than normal? On average, the S&P 500 experiences about a 14% downward swing within the calendar year. This doesn’t mean the market ends down 14%, it just means there is normal volatility within the market in any given year. (See “Reminder: The Stock Market Goes Down Sometimes” blog).
When you throw into the mix that there’s a presidential election, it may bring on this volatility sooner or be the catalyst for the volatility. For example, year-to-date in 2024, the S&P 500 has experienced only about 5% of market pullback, well below the average 14%. So, while the election alone may not bring more than usual volatility, the market may react more because we have had less volatility than average.
What do we do about election year nerves? In most cases, not much. We tend not to overreact one way or another due to one isolated event. That doesn’t mean we won’t make changes to allocations; it just means we want to ensure the allocation is appropriate for any given time. If you are well diversified and more long-term focused, the short-term volatility the election year brings is something that most can ride out. This is not the case for everyone, however. If you are retired or living off your retirement assets, we want to ensure you have enough cash or short-term reserves to satisfy your income needs and prevent having to sell during any market declines.
If you are positioned appropriately, the market has rewarded investors in most election years. On average since 1928, the S&P 500 have averaged over 11% in election years1. We are not market timers, so trying to know when the market is at the highest high to sell and then the lowest low to buy again is something that’s almost impossible to know. History has shown that the market tends to go up after the election is over, regardless of who is in office. And over the long-term both sides of the isle have seen very similar market returns. For these reasons, we encourage everyone to stay appropriately invested for their situation and not let emotions or short-term issues cloud our judgement.
This country has endured and persevered through many difficult times in its history, and we don’t think that is going to change. Investors that stay the course should be rewarded again for keeping that in mind.