Keep politics out of your portfolio

The bottom line

• Presidential elections can create uncertainty for investors who wonder what the outcome might mean for their portfolios.
• History shows that presidential elections have little direct impact on stock market performance. However, the potential for policy changes can affect issues around portfolios, such as tax considerations.
• Investors who can cut through the noise and invest based on the economy, not the election, may be better positioned for continued success.

The stock market doesn’t tend to reflect election uncertainty

Presidential election years are often filled with heightened feelings of uncertainty. However, it may surprise many investors that those feelings around elections aren’t typically reflected via the stock market’s favorite uncertainty metric, volatility. Consider this year: despite an extraordinary series of developments in the U.S. elections, there have only been four days where markets have moved by +/-2% or more.

Market volatility during election years

If we look back all the way to 1928, the vast majority of election years have seen fewer than ten +/- 2% trading days.

Stocks haven’t been particularly volatile in presidential election years
Number of single day S&P 500 returns of +/-2% or more in election years, 1/1/1928 - 9/30/2024

As seen above, a handful of presidential election years are the exception. Notably, significant stock volatility occurred in 1932, 2000, 2008 and 2020 - not because of the election, but rather the sharp economic declines that took place.

The stock market has tended to do well during election years

Large market moving events (or recessions) aside, stock markets have tended to do well in election years. The “hit rate,” or the percentage of times that the market posted positive annual returns, has been higher for presidential election years than non-election years. Since 1928, U.S. stocks were positive in 83% of presidential election years (20 of 24) vs. 70% (52 of 74 non-election years).

U.S. stocks have tended to make money more often in election years
Average annual return, 1/1/1928– 12/31/2023

The 2024 presidential election year is off to a strong start

With that context in mind, this election year has already seen strong market returns, posting the 3rd strongest start to a presidential election year (year-to-date through September 30), since 1928. Historically, stocks were usually weaker the first half of presidential election years, followed by a stronger second half. Even when we look at the average returns just across the top 10 nine-month periods to start presidential election years– a category we now find ourselves in 2024 – we have seen roughly 25% of the average annual returns occurring in the 4th quarter. Taking that into consideration, staying invested may be the most important portfolio construction decision that you make.

Stocks have performed well above average this election year
Return for first 9 months of all presidential election years and % return of the top 10 presidential election years by performance of the first nine-months of calendar year, since 1928

Tax policy in focus

With all of that in mind, stock performance around elections should not be the focus for long-term investors. However, elections can – and sometimes do – have ramifications for how portfolios are taxed. Making a plan with your financial or tax professional to adjust asset location or address other after-tax considerations in response to any policy changes could be essential for keeping more of what you earn.

In particular focus for this year’s election is the sunsetting of various provisions of the Tax Cuts and Jobs Act of 2017, which is set to expire after 2025 unless Congress intervenes. The below table highlights the changes that will take place if Congress does not intervene. Learn more about the potential impact to investors in Planning for a TCJA Sunset.

Summary of certain provisions

When it comes to elections, think financial and tax planning, not portfolios

In short, deviating from your strategic asset allocation based on performance fears around elections is usually unnecessary, and can even be harmful. In the face of uncertainty, staying invested is typically the best course for all investors. However, policy changes resulting from elections may impact investors in the gains-taking or withdrawal phase of their investing lifecycle. Create a plan with a financial or tax professional today that can be enacted if there are changes in tax policy that could impact your financial plan.

BlackRock can help you construct well-diversified portfolios designed for today’s markets. Talk to your financial professional for more information on partnering with BlackRock.

Explore the new Student of the Market: Election Special – historical market and portfolio analysis related to past election cycles and trends.

Election Special

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