In the lead-up to any major election, financial media and social platforms buzz with speculation about potential market impacts. However, savvy investors know that the key to navigating these political transitions lies not in following narratives, but in focusing on hard data and historical trends.
Election seasons are rife with uncertainty, a factor that typically keeps investors on edge. It creates a breeding ground for echo chambers and sensational speculation, often leading to emotional rather than rational investment decision-making. These narratives, usually propagated by media pundits and partisan operators, attempt to establish cause-and-effect relationships throughout financial markets and the nation’s economy that may not exist, confidently explaining the unknowable by framing it within a political context.
A look at historical data provides a sobering counterpoint to election anxiety. Since 1928, 19 out of 23 presidential election years have ended with positive returns in the S&P 500, as highlighted by First Trust Portfolios. The average return of the S&P 500 during election years has been an impressive 11.28%. The most significant outlier was 2008, with a -37% return, but this coincided with the global financial crisis. This data suggests that, on average, markets have shown resilience during election years.
Instead of getting caught up in election narratives, investors should focus on fundamental economic data. The U.S. consumer continues to drive strong economic growth, with annual real GDP growth maintaining at nearly 3% per Bureau of Economic Analysis data, translating to approximately 6% nominal GDP growth. Post-COVID consumption is on the rise, supported by high government spending. Corporate profits have grown in tandem with economic and consumption growth. This growth provides room for stock prices to rise without overstretching valuations.
Despite talks of “restrictive monetary policy,” the U.S. economy shows remarkable strength. Low unemployment, strong and growing corporate profits, rising incomes, robust consumer spending, and high levels of government spending all contribute to a uniquely strong economic position as we approach a new presidential administration.
While there will undoubtedly be differences between outgoing and incoming administrations, their immediate impact on the economy is often overstated. Economic changes, especially in an economy as large as the U.S., take time to manifest. Investors would do well to focus on long-term economic trends rather than short-term political narratives, monitor key economic indicators like GDP growth, consumer spending, and corporate profitability, and remember that factors outside of government policy often have the greatest influence on economic changes.
As we navigate through the post-election transition period, it’s crucial to maintain perspective. The U.S. economy’s current strength, coupled with historical market performance during election years, suggests that well-informed investors have little reason for panic. By focusing on data and long-term trends rather than speculative narratives, investors can make more rational decisions and potentially capitalize on opportunities that others, swayed by election-year noise, might miss.
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