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Don’t Let Election Anxiety Derail Your Investment Portfolio Thumbnail

Don’t Let Election Anxiety Derail Your Investment Portfolio

When elections are on the horizon, it’s normal for investors on both sides of the aisle to worry that the results could impact the economy and the stock market, for better or for worse.

Pundits are already weighing the potential benefits or pitfalls of a Trump win versus a Biden win in November.

I know from my own personal reactions what a roller coaster it can be for all of us. I’ve often caught myself thinking, “OMG, this is the most consequential election ever! Our democracy is at stake!! If ‘we’ lose it’s the end of everything!”

But as a longtime student of investment history, I also know such worries are largely unfounded, at least so far as the stock market is concerned.

You may be surprised to learn how little actual correlation there has been between the individual who occupies the Oval Office and how markets have performed during their years in power.

The truth is that stock market returns since the Great Depression have been positive on average under Republican, Democratic and divided governments. Since 1932, we have had 23 elections. Stock market returns have been positive during 78% of the ensuing presidential terms.

Moreover, those returns have been strikingly similar under both parties. On an annualized basis, the median performance of the Dow Jones Industrial Average under Democratic presidents during this period has been 7.7% vs. 7.9% under Republicans.

Citing a more recent example of two very different presidents, the Dow Jones Industrial Average returned 12.1% per year under President Barack Obama and exactly 12% under President Donald Trump. Furthermore, the same three sectors — technology, health care and consumer discretionary — led the market under both presidents, while energy was the worst sector under both.

It’s also worth keeping in mind that how we feel about the economy often has more to do with whether our preferred party holds the White House than with actual data.

A case in point is the current environment in which, despite record-low unemployment, strong wage gains and a dramatic decline in the rate of inflation, a large percentage of the country is feeling gloomy.

One would be hard-pressed, judging from opinion polls, to guess that after being flat last year, corporate profits are expected to grow by 11% in 2024. Nor would it be clear that far from hurting the economy, a surge in immigration is broadening the labor pool, especially in lower-income jobs, and actually prolonging the momentum of the post-pandemic recovery, according to the federal Bureau of Labor Statistics.

One would be unlikely to conclude from this week’s two-year low in consumer sentiment readings that household spending — which makes up 68% of gross domestic product — continues to be strong, or that residential construction is picking up, or that state and local government coffers have ample cash to fund both hiring and infrastructure projects.

Today’s disconnect between public perception and economic data, and the misguided conflation of political sentiment with economic reality, is no exception to the norm.

So in the months to come, my advice to you is the same as my advice to myself: Don’t let election anxiety impact your investment choices.

Try to keep your money and your politics separate. Remember that over the decades, investors who have stayed invested regardless of election results have fared far better than those who avoided the market because one party or the other was in power.

Whatever you may be feeling about the state of the nation, history suggests your best course of action will be to fasten your seat belt as the election approaches, review your long-term investment plan, rebalance your portfolio and commit to staying invested regardless of the outcome in November.

This post was originally published in the Santa Fe New Mexican in David and Leah Cantor's monthly column, Cantor's Corner, on May 6, 2024. To read or comment on the original, please CLICK HERE to be redirected to the Santa Fe New Mexican website.

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David Cantor is a founder and principal at LongView Asset Management. David is a 30-year Zen practitioner, a mushroom hunter and an avid hiker. He and his daughter Leah Cantor are the father-daughter duo behind Cantor’s Corner, which explores the intersection of personal finance with broader social, economic and political issues. You can reach David at david@longviewasset.com.

This material is intended for education purposes only. LongView Asset Management, LLC (referred to as "LongView") does not warrant that the provided information will be free from error. None of the information provided is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon for transacting securities or other investments. Under no circumstances shall LongView be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials provided. In no event shall LongView Asset Management, LLC have any liability to you for damages, losses, and causes of action for accessing this commentary. Past performance is not indicative of future results. This content not reviewed by FINRA. Photo by Marek Studzinski on Unsplash.