In this episode of “Investment Management Foundations,” Ayako Yoshioka, Wealth Enhancement Senior Portfolio Manager, breaks down how investment markets fluctuate during presidential election years and how markets respond to Democratic and Republican presidents.

VIDEO TRANSCRIPT BELOW

Hi! Welcome to another edition of “Investment Management Foundations.” My name is Aya Yoshioka, Senior Portfolio Manager here at Wealth Enhancement Group. Today's topic of investing in an election year has been a topic of conversation for several investors. We understand that people can be very passionate about politics, and with 2024 being an election year, we wanted to provide some market insight by looking back at history. 2024 is not just an election year here in the U.S., though. Globally, important elections are taking place in countries making over 50% of global GDP. Even when we have a domestic portfolio, 40% of revenue across S&P 500 companies come from outside the U.S. So, understanding the political climate can be very helpful, but it doesn't necessarily drive any of our investment decisions.

Coming back to the U.S., many of us remember Donald Trump's surprise win in 2016. And you may recall that this surprise caused significant fluctuations in the S&P 500 as the index initially fell by more than 4%. After the initial results were in, however, a month later, the S&P 500 index was up 5% from the night before the election. Markets are apolitical and dislike uncertainty. So, once the winner was known and the focus shifted more towards the policies, which ended up actually being pretty positive for corporations, given the expected direction of tax policy, investors were drawn back into markets. And the S&P 500 was again up 5%, as I mentioned, one month later and up near 20% in 2017.

In fact, the growth of $10,000 invested in the market 40 years ago saw ups and downs during both parties but grew to well over $450,000, as you can see in this chart, when staying invested because markets are really driven by earnings and not by politics. And this can be seen in the next chart as well. This chart shows it goes even further back in history. And we're seeing the annual compound return under a Democratic president being 8.2%, while the same annual compound return for a Republican president is 8.4%. So, the difference is pretty small.

So, for 2020, most forecasters expect a close election and investor concerns are wide in ranges. They range from heightened geopolitical risk, which continues to be an issue, unsustainable path of fiscal policies, our deficits are growing larger and larger by the day, and potential changes in the tax policies that were so favorable back in 2017. However, in our view, when it comes to the impact of elections on markets, we believe it's the policies that matter more than the politics, and that although there can be some volatility associated with politics and elections, the key is to stay invested—especially with the help of a financial advisor and a financial plan. Thanks for listening today, and stay tuned for another episode of Investment Management Foundations from Wealth Enhancement Group. Thank you!

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.