Election years are often marked by market uncertainty and volatility as investors speculate on potential policy changes and their impact on the economy. However, despite heightened volatility and concerns over policy changes, markets have historically demonstrated resilience during these periods. As the 2024 elections approach, it’s natural for investors to feel the stakes are higher than ever. However, this sentiment accompanies every election cycle. To effectively leverage election-year market trends and optimize your portfolio for growth, partnering with a certified financial planner Chicago at Virtue Asset Management can offer guidance and customized strategies.

Election years have a unique influence on the stock market, and history provides us with some useful insights. Over the 92-year period from 1928 to 2020, the S&P 500 index posted positive returns in over 80% of election years, with gains recorded in 20 out of the 24 years in which presidential elections took place. Despite the uncertainties often accompanying these events, this highlights the market’s general resilience during election cycles.

Several factors contribute to these trends. Investor sentiment often plays a significant role as people react to the perceived risks and opportunities presented by the potential for new leadership and policy shifts. Economic conditions leading up to the election, such as inflation, unemployment rates, and GDP growth, also influence market behavior. While elections can introduce volatility, the long-term trends often reflect broader economic fundamentals rather than short-term political outcomes.

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” This statement by legendary investor Peter Lynch serves as a reminder that overreacting to potential market changes, such as those during an election year, can often do more harm than good. Instead, focusing on a long-term investment strategy and avoiding the temptation to time the market based on short-term political events is critical for sustained success.

Identifying Key Sectors Affected by Election Outcomes

Certain sectors are more sensitive to election outcomes, making it important for investors to understand these dynamics. Historically, sectors like technology, infrastructure, and healthcare often experience growth during election years, driven by potential government spending or policy reforms. Conversely, industries reliant on regulatory stability, such as energy and financial services, may face challenges due to uncertainty about future regulations. Meanwhile, sectors like consumer staples and utilities remain stable regardless of election results, providing a buffer against volatility.

To effectively leverage election year market trends, consider these strategies that can help you manage risk and capitalize on opportunities:

Diversification Across Sectors:

Diversifying your investments across multiple sectors is a fundamental strategy for managing risk, especially during an election year. By spreading your investments, you can reduce the impact of volatility in any one area. If you’re unsure how to diversify effectively, consulting with a certified financial planner in Chicago like Virtue Asset Management can be wise to ensure your portfolio is well-structured.

Timing Market Entry and Exit:

Election years can create opportunities for timing your market entry and exit points. However, timing the market is notoriously challenging, and it’s important to approach this strategy with caution. Some investors may benefit from a wait-and-see approach, allowing them to assess market reactions to election developments before making significant moves. Others might choose to adjust their portfolios in anticipation of potential changes, particularly in sectors most likely to be impacted by the election. Virtue Asset Management is a fee only financial planner Chicago investors can rely on to provide expert guidance in making these critical decisions.

Hedging Against Volatility:

Given the increased volatility often seen during election years, hedging strategies can provide an extra layer of protection for your portfolio. This might involve using options, bonds, or other financial instruments to mitigate downside risk. For example, in the 2016 election year, market volatility spiked before and after the election. However, diversified portfolios that included bonds and defensive stocks weathered the storm more effectively than those heavily weighted in riskier assets.

Do Market Outcomes Really Depend on Who Wins the Presidency?

While election outcomes can cause short-term fluctuations, the market’s long-term performance is more influenced by broader economic factors like corporate earnings, interest rates, and global trends. Historical data shows that markets tend to stabilize regardless of who holds office. The key to investment success lies in focusing on sound, long-term strategies rather than reacting impulsively to political changes. The market’s future isn’t dictated by the election’s outcome alone.

Navigate the Election-Year Investment Market with Virtue AM

In an election year, the stakes can feel higher than ever for investors, but Virtue Asset Management is here to guide you through it. As a premier certified financial planner in Chicago, we craft customized strategies for individuals and high-net-worth families. If you’re seeking the services of a fee-only financial planner in Chicago for impartial advice, free from conflicts of interest, Virtue Asset Management is committed to providing personalized financial planning and investment management to help secure and grow your assets during election-year uncertainties and beyond.

Disclosure:

Additional information about Virtue Asset Management is available in its current disclosure documents, Form ADV and Form ADV Part 2A Brochure, which are accessible online via the SEC’s investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD#283438.