Election Year Volatility: A Historical Perspective
Understanding How Elections Impact the Stock Market
As every election year approaches, it brings with it a mix of uncertainty, negative speculation, and market volatility. But how do elections really affect your investments? Explore how historical events shape the financial landscape, and learn how to navigate these challenges.
Historical Election-Year Impact on the Economy
From the bitter election campaigns of the 1800s between John Adams and Thomas Jefferson to the current day, election years have always been marked by heated rhetoric, controversy, and uncertainty.
- 1800s: Jefferson’s supporters accused Adams of wanting a monarchy, while Adams’ camp painted Jefferson as an atheist sympathetic to revolution.
- 1928: Alfred E. Smith faced strong anti-Catholic sentiment.
- 1960: Nixon’s camp criticized Kennedy’s Catholic faith, lack of experience, and family wealth.
- 1988: Dukakis was portrayed as an out-of-touch governor in negative political ads.
The Impact of Social Media & The Internet
Today, the cycle of negative speculation is amplified through social media, shaping voter sentiment and introducing additional uncertainty into the markets.
Market Volatility During Election Years
Investors & Uncertainty: The Link Between Elections and Stock Market Behavior
Election years introduce uncertainty about potential policy changes that can directly impact sectors such as taxation, trade, regulation, and government spending. With so much at stake, investors may find themselves hesitant, waiting for a clearer outcome before making major decisions.
Despite these concerns, history shows that the market often recovers post-election as uncertainty dissipates, and elections, regardless of outcome, usually lead to long-term stability.
Election Year Market Returns
Here’s a quick look at how market returns fluctuate during various periods of the election cycle:
| Month | Election Year | Post-Election | Mid-Term | Pre-Election |
|---|---|---|---|---|
| January | 0.0% | 0.9% | 0.6% | 4.2% |
| February | 0.9% | 0.1% | -0.1% | 1.6% |
| March | 1.6% | 0.4% | 0.8% | 1.9% |
| April | 0.4% | 1.4% | 1.0% | 3.9% |
| May | 1.6% | 1.6% | 0.2% | 0.9% |
| June | 2.1% | 0.1% | -1.1% | 2.2% |
| July | 1.2% | 2.6% | 3.3% | 2.1% |
| August | 1.6% | 0.2% | 1.8% | 1.5% |
| September | 0.2% | -0.5% | -0.3% | -0.4% |
| October | 0.5% | 2.0% | 2.4% | 1.3% |
| November | 1.3% | 2.7% | 2.4% | 0.9% |
| December | 1.6% | 1.1% | 1.9% | 2.8% |
Source: Inflation adjusted Morningstar Stocks, Bonds, Bills, and Inflation, Long-term Treasury index (1929 – 2024)
Long-Term Growth Despite Short-Term Challenges
While election years can cause short-term market volatility, they also highlight the importance of long-term investing. Let’s take a closer look at how different administrations affect market performance:
- Republican vs. Democrat Presidents: Historically, both Republican and Democrat administrations have shown significant long-term growth, but with varying levels of volatility.Visual Graphs of Stock & Bond Growth Over Time, Comparing Democrat vs. Republican Presidents
This article is posted at annexwealth.com
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