The 2024 presidential election is quickly approaching, and investors may be wondering how the outcome will impact the stock market and underlying investments. With history as an indicator, here are a few trends to keep in mind.

Historic trends in election years. Generally, market volatility trends are higher early on as candidates become finalized and again as the election nears, as investors react to the news cycle and grapple with the unknown. As the winner becomes clear, market volatility levels tend to normalize(see footnote 1) after the elections.

The impact of incumbency. Candidates can further impact markets and volatility trends. Volatility has been higher in election cycles without an incumbent in the running. Market returns have trended more favorably with an incumbent on the ballot than when two non-incumbents have faced off(1). The 2024 election will be an interesting test of these trends, being the first rematch of presidential candidates since 1956, when President Dwight D. Eisenhower defeated Adlai Stevenson for a second time(2).

Policy changes. Market returns tend to be stronger in the first two years of a returning president’s term based on investor experience and the administration being better equipped to navigate political barriers. What any presidential administration can accomplish is limited by Congress, local and state legislatures, and their political party. During these last two years, there is limited time to implement policy, and investors start looking ahead to the unknown policies of a new administration as the next election draws near(1).

Bottom line: Stick to the fundamentals and invest for the long term. Regardless of the political backdrop, financial markets are principally driven by growth in the economy, corporate profits, and the direction of interest rates in the long term. Fluctuations in markets are normal; stick to the fundamentals. A diversified portfolio with a mix of different investments selected according to your goals and risk tolerance is key to avoiding potential overexposure to unnecessary investment risk. Diversification helps mitigate portfolio risks caused by geopolitical circumstances, election volatility, or policy changes.

It is normal for emotions to run high as you anticipate the uncertainty of an election. As an investor, consider the impact of an election on your investments, but remember it is only one short-term factor. Review your investment strategy and financial plan with a financial advisor who can help you stay attuned to your long-term goals.

1 – Ameriprise Financial: “Committee Perspectives: U.S. Election Guide” May 2024. Compiled by Ameriprise Global Asset Allocation Committee.

2 – Associated Press: “US has its first presidential rematch since 1956, and other facts about the Biden-Trump sequel” March 2024.

Paul A. Pouliot, CFP®, ChFC®, CASL®, CLTC®, is a Private Wealth Advisor and owner of Paul A. Pouliot & Associates, a private wealth advisory practice of Ameriprise Financial Services, LLC. in Bedford, NH. He specializes in fee-based financial planning and asset management strategies and has been in practice for 28 years. Contact at Paul A Pouliot, Private Wealth Advisor in Bedford, NH (ameripriseadvisors.com).

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