In 2024, for the first time in history, more than 2 billion voters across 50 countries — including the United States, the European Union and India — will head to the polls in a record-breaking number of elections around the world. More than 40 percent of the world’s population and economy will hit the polls to elect national leaders.

These political milestones can send ripples through the stock markets, shaping investor sentiment, economic policies and market direction. With a properly designed and executed plan, this should not impact you.

Market timing vs. time in and out of the market

We get calls from people asking if they should move out of investments and markets before an election. The simple answer is no — if you have a broadly diversified portfolio. Moving in and out of the market is “market timing,” and this has been shown to hurt investors in the long run.

However, “time in and out of the market” is an important strategy to follow. Investors who pull out of the stock market during a downturn typically lose money. Investing is a long-term venture, so the wisest option is always to stay the course.

For example, consider the hypothetical scenario of investing $10,000 in the S&P 500 index over a 20-year period, from January 1, 1999, to December 31, 2018. According to data from J. P. Morgan, if you had remained fully invested throughout the entire period, your investment would have grown to approximately $48,000. However, if you missed the 10 best days (out of 20 years), your ending balance would have been cut in half.

Our investment process uses current dividends and income to support current cash needs, along with holding cash for any anticipated expenses and emergencies. By doing so, the short-term fluctuations of a portfolio don’t matter. We allocate in broadly diversified asset classes and take a proactive approach to monitoring and rebalancing your portfolio.

The reaction of stock markets to elections is a nuanced interplay of anticipation, uncertainty and interpretation. While the overarching sentiment often hinges on the perceived impact of election outcomes on economic policies and regulatory environments, the market response can vary widely based on factors such as political stability, policy continuity and the broader global economic landscape.

Examining historical data unveils intriguing patterns regarding the relationship between elections and stock markets. While it’s tempting to draw broad conclusions, each election cycle is unique, shaped by a myriad of factors, including prevailing economic conditions, geopolitical tensions and public perception. As always, past performance does not indicate future results. Moreover, as mentioned, our investment process, and our clients’ success, is not dependent on market behavior.

3 Ways in Which Elections Impact the Stock Market

The following are three types of dynamics that impact the stock market before, during and after an election.

Pre-election jitters: According to Forbes, the year leading up to an election typically shows lower returns as investors cope with However, in the 12 months after an election, the market’s performance tends to be stronger than usual, regardless of which party is in office.
Election day swings: Election Day frequently witnesses sharp market movements, reflecting the immediate reaction to election results and the market’s assessment of the incoming leadership’s economic agenda. On election day, the S&P 500 often witnesses significant movements in response to the election results.
From 1970 to 2022, the S&P 500 moved an average of 0.32% on the days when elections were held, usually in the first week of November, according to Dow Jones Market Data. Sixty percent of the time, the index was up. That might not seem like much, but the S&P 500’s average daily change for all trading days between 1970 and 2022 was just 0.03%. That means stocks are 10 times more volatile on election days than nonelection days.
Post-election resilience or turbulence: Once the dust settles, markets tend to exhibit either relief rallies or prolonged volatility, depending on the perceived alignment between the new government’s policies and market expectations. Smooth transitions and policy continuity typically reassure investors, fostering market stability and confidence.

Data show that if a new party is elected to the presidency, the stock market’s returns average 5 percent. When the same president is re-elected or the party retains the presidency, returns are slightly higher, averaging 6.5 percent.

Markets can assimilate bad news, but they do not like uncertainty. Once the outcome of an election is known, markets tend to stabilize. Another reason not to try to time the market!

Keep in mind that historical data also suggest that economic and inflation trends tend to have a stronger, more consistent relationship with market returns than election outcomes, And regardless of the patterns evident in historical data, each election year has the potential to result in new shifts in the stock market. Past results do not guarantee future stock performance.

We expect continued and increased volatility in 2024 as elections approach worldwide. We believe this can provide an opportunity for savvy investors.

Navigating the Storm: Investment Strategies

In the face of election-induced, or any other, market volatility, prudent investors adopt strategies to mitigate risks and capitalize on opportunities. Here are three strategies that can help you mitigate any shifts:

Keep cash on hand: Have enough cash for short-term
Diversify: Maintain a diversified portfolio across asset
Maintain a long-term perspective: Focus on long-term investment goals and objectives and ignore short term volatility.
Work with a team of advisors who can provide both expert guidance and perspective to help address your concerns and questions: Vanguard, one of the world’s largest investment management companies, conducted a groundbreaking study titled “Advisor’s Alpha.” The study aimed to quantify the value that financial advisors bring to their clients, beyond just investment

Vanguard found that, on average, financial advisors can add about 3 percent in net returns for their clients annually through various means such as behavioral coaching, asset allocation, cost-effective investment selection and tax-efficiency strategies.

In the ever-changing landscape of investing, the temptation to time the market will always be present. However, history and statistical evidence consistently demonstrate that market timing is a flawed strategy that can erode long-term investment returns.

Instead, you are better served by embracing patience, discipline and a steadfast commitment to your long-term financial objectives. This strategy is the foundation of our proprietary Personal Vision Planning^® process.

In the United States, we will no doubt hear that this is the most important election in history, and the media will focus on negative, dramatic and often frightening rhetoric. Markets can handle bad news, but they do not like uncertainty. As a result, we expect continued volatility and believe this will present both a risk and an opportunity.

Our firm has navigated elections and uncertainty for more than 34 years, and our team has more than 250 years of combined experience. The team at Carver Financial Services is available to discuss your personal goals and address any questions or concerns, without cost or obligation.

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Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Carver Financial Services, Inc., was established in 1990 with the vision of making people’s lives better — clients, team and community. With this mission, Carver Financial Services has grown to be one of the largest independent financial services offices in the country, managing $2.5 billion in assets for clients globally, as of December 2023. You can reach Randy directly at randy.carver@raymondjames.com and in the office at (440) 974-0808.

Any opinions are those of Randy Carver and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.